Considerations on the Application of IFRS
21 June 2011
Minister for Financial Services Shozaburo Jimi

With regard to the application of IFRS in Japan, “Opinion on the International Financial Reporting Standards (IFRS) in Japan (Interim Report)” was released by the Business Accounting Council in June 2009, and voluntary application of IFRS had been made possible for the business years ending on or after 31 March 2010. However, there have been many changes in the circumstances both domestically and abroad since then.

  • - The publication by the US SEC of its staff's work plan for the consideration of incorporating IFRS into the US financial reporting system (February 2010),

  • - The announcement of a few months' delay in the completion of the convergence project by IASB and FASB (April 2011),

  • - The publication of a report by the Panel on Non-consolidated Financial Statements,

  • - The submission of a request by the industry* (25 May 2011),

  • - The publication by the US SEC of its staff's work plan for the consideration of incorporating IFRS into the US financial reporting system** (26 May 2011),

  • - The release by the Japanese Trade Union Confederation, or Rengo, of their policy focus (Priority Policy Actions 2011-2012)*** (June 2011),

  • - The outbreak of the unprecedented Great East Japan Earthquake and tsunami, and

  • - The increase in competition for greater influence on IFRS in the international arena, including in Asia.

While the “Interim Report” indicated a certain direction, I have decided to hold before the end of June a joint meeting of the plenary and the Planning and Coordination Committee of the Business Accounting Council, after adding new members to represent diverse views, and seek a discussion taking into account the changes since the release of the “Interim Report,” the fact that the voluntary application has been made possible for the business years ending on or after 31 March 2010, the progress in the equivalence assessment by the European Union, and the impact of the Great East Japan Earthquake and tsunami. I would hope that the discussion pays due attention to the fact that the “accounting standards” are not merely technical issues, but much broader issues highly relevant to the status of Japanese firms closely related to the country's history, business culture, and national heritage, as well as related legal systems including Companies Act and the tax system, and the firms' global competitiveness, and thus takes account of the views of a wide range of stakeholders and at the same time carefully pays close attention to domestic developments and the situation in other countries, inter alia, in the United States, so that the discussion will be comprehensive and mature.

I hear that there is a widely spreading view in some corners that mandatory application of IFRS could be introduced for the business year ending 31 March 2015 (i.e., BY2014), at the earliest, but I would like to clarify today the following:

  • - Mandatory application should not take place from the business year ending March 2015, at the very least, and a sufficient time period of five to seven years should be required for preparation if and after mandatory application is decided.

  • - Remove the termination date of the treatment to allow the use of US GAAP for disclosure purposes in the interim, namely up to the business year ending on or before 31 March 2016, so that the firms will be able to continue their use of US GAAP.

(Notes)

* Outline of the “Requests on how to deal with IFRS in Japan (May 2011)” by 21 firms from the industrial sector

(1) A prompt discussion is needed on the general design of the accounting system including the appropriateness of IFRS application to the consolidated financial statements of listed companies based on proper analysis and sharing of information on international developments.

(2) If it takes time to reach a conclusion on the design of the entire system, it is necessary to provide a sufficient time period for preparation (e.g., five years) and extend transitional measures (continued acceptance of disclosure using US GAAP), so that the industry would not incur unnecessary costs for preparation.

** “Work Plan for Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers-Exploring a Possible Method of Incorporation”

A Securities and Exchange Commission Staff Paper, May 26, 2011

*** “Priority Policy Actions 2011-2012 (June 2011)” by the Japanese Trade Union Confederation, or Rengo.

(4) Reforming corporate related legal framework and realizing accounting standards, that would benefit a wide range of stakeholders such as workers

b) It should be promptly made clear that mandatory application of IFRS to the consolidated financial statements of listed companies should not take place for the time being. Also, as for accounting standards for non-consolidated financial statements, while ensuring transparency by means of footnotes etc., convergence should take place only for those standards deemed appropriate based on the industrial structure and actual business operations in Japan, and the resulting differences in accounting standards between those used for consolidated and non-consolidated financial statements should be accepted.