As globalization has progressed in recent years, the need for financial statements prepared based on common standards has increased for companies and investors who are active across borders. If you are in charge of accounting and finance, I think many of you already understand this background and overview. However, even if you are in charge of accounting and finance, the necessity of IFRS will vary greatly depending on whether the company you work for is Japanese, American, European, etc. Therefore, in this article, I would like to discuss whether knowledge of IFRS is necessary at this stage for accounting and finance personnel working in Japan, depending on whether the head office is located in an IFRS-compliant country or not.
table of contents
- 11. What is IFRS?
- 11.Overview and background of IFRS
- 22. Countries that have adopted IFRS
- 22.Major countries where application of IFRS is not mandatory ~United States/Japan~
- 11. Situation in America
- 22. Situation in Japan
- 33.Necessity of IFRS and impact of its introduction
- 11.Is IFRS necessary for you?
- 22. Impact of introducing IFRS
- Four4.Summary
1.What is IFRS?
1.Overview and background of IFRS
IFRS (International Financial Reporting Standards) is called IFRS and is translated into Japanese as “International Financial Reporting Standards”. With the rapid globalization of financial and capital markets, the need for universal accounting standards has increased, and in response, the International Accounting Standards Board (IASB), a private organization based in London, Board) has established common accounting standards. IFRS has spread around the world since 2005 when the EU (European Union) required listed companies in the region to apply IFRS, and it is now applied in more than 120 countries* (as of June 2018). It has been.
2. Countries that have adopted IFRS
In order to introduce the status of IFRS implementation around the world, we have excerpted the “IFRS Foundation’s International Application Status Assessment 2016 End of 2016” below.
orange color that occupies the majority indicates countries where IFRS has been compulsorily applied, and you can see that IFRS has been applied all over the world, including most European countries, Russia, Canada, and Australia. However, economically powerful countries such as the United States, Japan, and China are listed as countries that are not obligated to apply. In the next chapter, we will discuss the current situation in the United States and Japan, which are countries that do not apply IFRS.
2.Major countries where application of IFRS is not mandatory ~United States/Japan~
Japanese accounting standards were strongly influenced by postwar American accounting standards, and were created based on the American accounting principles of the time, taking into consideration Japanese business customs, commercial laws, tax laws, etc. As a result of this, Japan’s accounting trends are following America’s lead, and the same applies to the application of IFRS. Based on this background, in this chapter I would like to focus on the United States and Japan among the countries that do not apply IFRS, and discuss the current situation.
1. Situation in America
・2002: In order to adopt IFRS, Japan announced a policy of converting (integrating and converging) to IFRS while revising its domestic standards in stages. ・2007: Allowing listed foreign companies to apply IFRS. 2011: A decision will be made on whether to forcefully apply IFRS to listed companies in the United States by the end of the year, but this decision remains postponed. In other words, there is currently no conclusion as to whether voluntary or compulsory application will apply to listed companies in the United States.
2. Situation in Japan
As of June 2018, 161 listed Japanese companies have adopted IFRS, and 32 companies plan to do so. The history so far is as follows. ・2005: Japan, like the US, sets out the direction of convergence to IFRS ・2009: Announces the following roadmap – Allows companies that meet the requirements to apply IFRS voluntarily in 2010 – Makes it compulsory in 2012 Make a decision on application – Mandatory application from 2015 or 2016 – 2011: The Minister in charge of Finance at the time stated, “We are not considering mandatory application at least in the fiscal year ending March 2015, and even if we do, there will be no change from the decision. “We will set a sufficient preparation period of about five to seven years.” With this announcement, the trend changed completely, and the movement towards mandatory application of the law came to a virtual halt. If the head office is located in Japan, there is no obligation to apply IFRS, but voluntary adaptation is permitted. Currently, IFRS is becoming more and more popular as companies apply it voluntarily. Below we introduce companies that have voluntarily adopted IFRS. (Partial excerpt) ・Table 2
3.Necessity of IFRS and impact of its introduction
1.Is IFRS necessary for you?
As you can see from the “IFRS Foundation International Application Status Assessment 2016 Year End” chart introduced in Chapter 1, many countries around the world have adopted IFRS. So, what is the need for accounting and finance personnel working in Japan, the subject of this article? They are summarized below for each category.
Classification example 1) The head office is in Europe and you work at its Japanese branch. Since the head office has introduced IFRS, consolidated financial statements using IFRS are necessary at the head office, but I will be talking on the assumption that IFRS has not been introduced in Japan (branch offices). It can be said that Japanese branches should also consider acquiring IFRS in order to potentially introduce IFRS. If you have access to the entire company’s financial statements (consolidated financial statements) within your company, you can learn on your own by comparing the consolidated and non-consolidated financial statements. It is necessary to understand what changes will be made from the current Japanese standards and how they can be linked, and it can be said that the need for IFRS is high for accounting and finance personnel who fall under this category 1. Sho.
Classification 2 Example) The head office is in the United States and you work at its Japanese branch. Since the country where the company’s headquarters is located is a non-IFRS country, there is little need for IFRS for the time being. Even if your country decides to introduce IFRS, there will probably be a few years until it actually applies, so there is plenty of time to start learning IFRS once the decision is made. It would be a good idea to follow future trends.
With the advancement of globalization, IFRS was born as a universal accounting standard, but the actual necessity varies greatly depending on the country where the head office is located. As a side note, I myself have been involved in accounting and finance work for 7 years at the Japanese branch of an American company (headquartered in the United States) and 4 years at a Japanese company (headquarters and branch offices are both in Japan). I’ve never felt the need. This can be said to have a major influence on whether the country where the head office is located is an IFRS-compliant country. However, it is clear that IFRS will become more and more important with globalization, so knowledge of IFRS will be important in the future.
2. Impact of introducing IFRS
If the company you currently work for were to adopt IFRS in the near future, what would change? We will explain the possible advantages and disadvantages of accounting and finance operations as a whole, as matters common to classifications 1 and 2. *Assuming that IFRS has not been introduced in Japan (branch offices) in Category 1.
・Benefits of introduction Contribution to business management In countries where IFRS is applied, the same indicators are used for consolidated financial statements, making management easier. Improved comparability and transparency Since there is one standard for performance evaluation, it is possible to understand performance more accurately and to compare performance between countries. No need to rewrite financial statements When explaining to overseas investors or raising funds overseas, it is necessary to rewrite Japanese GAAP financial statements as necessary, but by applying IFRS, the hassle of rewriting can be eliminated. We can provide explanations to investors and raise funds in a timely manner.
・Disadvantages of introduction Increased administrative burden At the time of tax filing, since the corporate status of the head office and branch office is in Japan, disclosure based on Japanese standards is still required, so it is necessary to prepare two types of accounting standards: IFRS and Japanese accounting standards. , the administrative burden will increase. Increased practical burden With the introduction of new accounting standards, in-house training to acquire IFRS will be required. There will also be projects associated with changes to the accounting system and training to introduce the system after the change. Not only that, changes in accounting standards will also require interaction with external organizations, such as additional audits from external advisors and accounting firms. Difficulties in continuing operations There are still only 161 companies in Japan that have applied IFRS (as of June 2018), and there are currently few precedents. In particular, IFRS is principle-based, and managers and accounting and finance personnel must select the individual accounting treatment that best suits the actual management situation, so it may be difficult to make a decision if you cannot refer to precedent cases.
4.Summary
Well, how was it? In summary, I would like to make the following three points. ・Since 2005, IFRS has spread to Europe, Russia, Canada, Australia, and other countries. – In the United States and Japan, plans have been made to convert to IFRS, but the movement has currently stalled. We need to follow future trends. ・The need for IFRS is increasing around the world, but since the need differs depending on the country where the head office is located, it is important for each person to determine the need for IFRS.
