We introduce some points to keep in mind in the disclosure for the year ended March 2012
（１）points to the application of “the accounting policies changes in accounting estimates and errors”
①Expansion of explanatory notes
“The explanatory note about the changes of the accounts policy”, “the note about the changes of the presentation method”, “the note about the change of the accounting estimate” and “the note about the correction of the error” are added to an explanatory note in the financial statements after the revision of the calculation rule of the Company Act dated March 31, 2011.
②Changes in the shareholders’ equity
“The end of the former year balance” should be replaced with “the beginning of the year balance”
(2) Explanatory note of the amount of recycling associated with the presentation of the comprehensive income
“An explanatory note of the amount of recycling” is necessary from the consolidated fiscal year ended after March 31, 2012.
(3) Influence on tax effect accounting by the tax reform
Because a legal effective tax rate will be changed by the revision of so-called the law of the special tax for the recovery and revision of the corporate income tax, explanatory notes such as the amount of impact by the tax rate changes will be required.
Accounting Standards Board of Japan and Project Adjustment Committee, which both belong to Finacial Services Agency, together had a meeting on 29 Feb. 2012, to report a survey on the IFRS conducted by Keidanren, Japan Business Federation.
In the meeting, realistic opinions were made by the companies, such as “its scope should be limited to the consolidation financial statements,” “they shouldn’t force companies to adopt the IFRS for the moment, and see how things go,” “even if they choose adoption, it is not realistic that every company should adopt it.”
In addition, as of the principles-based accounting of IFRS, more judgmental decisions will be required when it comes to accounting treatment. Therefore, there are some operational comprehensions such as “conflict between companies and auditors,” while companies would like auditors to prepare guidelines as much as possible or take appropriate steps to the situations.
Next meeting is planned on 29 March, 2012.
Draft exposure of revision of the law of special tax treatment was submitted to the Diet on 27 January, 2012. This draft exposure says that in the case that assets associated with solar and wind power generation are acquired between 1 July 2012 and 31 March 2013 and the assets start to be used for the business, they can be depreciated immediately in the fiscal year.
They expect to increase more power generation by attracting investments with benefits in order to take step in the situation that they are short of eclectricity,.and also it helps companies save tax.
New accounting standards will be applied from the year ended March 31 2012, which is “accounting standards of changes in accounting policies and errors.” They will need a note for the new accounting standards which is not applied to the financial statements for the year-end disclosure. The items below should be disclosed.
1. The name of new standards and its overall explanation
2. Planned date of the application of the standards
3. Impact that the new standards give to the company
Consideration of taxation should be treated with great care in retrospective transaction. Even if the accounting information should be changed retrospectively, this does not change the “already fixed year-end financial statements in the past”. So, retrospective adjustment will not make any effect on taxation.
However, if the change of the accounting information belongs to an error of the past transaction, accounting restatement will be required as well as submitting a return of tax adjustment and adjusting tax calculation of the past.
Tokyo Stock Exchange on Dec. 29 2011 announced a plan to review the current disclosure of earnings forecast.
Today’s forecasts are not flexible in a sense that they have to fill in the uniform format the sales, operating profit, ordinary profit, net profit. This time is different in the way that they allow a variety of ways of disclosure so that they could disclose appropriate information about earnings forecast according to their actual situations, and let investors understand situation better.
TSE will announce more detailed information after March.
They have started to collect public comments on “Interim draft on revision of the Company Act” made by Board of Enactment of the Company Act which belongs to the Ministry of Justice.
Since it would be too long to explain this topic fully in this blog, we would like to take matters that relates to accounting auditors.
One of them is the “Proposals on appointment and dismissal of accounting auditors and decisions on their remunerations”, which is located on the part “Functions of the second auditors”,
According to the current Act, proposals on appointment and dismissal of accounting auditors and decisions on their remunerations are made by company’s directors. And these proposals and decisions should be ratified by company’s auditors so as to assure an independency of the accounting auditors (Company Act 344.1, 399).
In another word, by letting company’s auditors own the rights described above they intend to offset the paradox that accounting auditors who audits company’s financial statements prepared by company’s directors are actually under directors’ control in a sense that their dismissal and remunerations are largely influenced by directors’s decision.
The issued interim draft points out that they should give company’s auditors more power, concretely speaking to give them rights to decide, in order to reinforce the supervision to the directors.
We expect various comments on whether this draft really accomplishes an intended purpose, so we look forward to them.
“Tax Reform 2011 Act” and “Financial Resource for Recovery Act” have been issued on Dec. 2, 2011. Followings are the items that could have an impact on the tax effect accounting.
1) Corporation tax will be lowered down to 25.5% from 30%, and the special tax for the recovery will be added to it (effective from the fiscal year beginning from April 1 2012).
2) Maximum amount of tax loss carryover will be 80% down from 100%, and carryover term will become longer from 7 to 9 years (tax loss that incurred for the fiscal year ended after April 1 2008) for the companies other than SMEs.
According to this reform, the financial report on the end of the fiscal year and quarterly reports requires a change in calculation of the tax effect accounting because it has to use the new effective tax rate. And also we have to be careful of the reversal of the deferred tax assets that could be triggered by the 20% decrease of the tax loss carryover and lowered corporation tax.
SME Agency and Financial Services Agency as a head office issued on November 8 2011 an exposure draft of the basic plan for the SMEs’ accounting. This shows how to dealt with the accounting treatment and presentation of the financial statements in order not to impose too much burden on SMEs while the financial statements are prepared according to the calculation guidance of Company Act.
Since it does not seem beneficial to ask SMEs to apply the same standards as the listed companies or large-sized companies, we think that this announcement is beneficial to SMEs.
The comment period of the exposure draft closes on Dec. 7, 2011.
JICPA issued on 24 Oct. 2011 an exposure draft of “a report based on a new draft policy”, which they have been working on to replace the existing standards of report on quality control standards, all the audit standards board’s report and assurance practice board’s guidance. This draft is based on the “clarity version” of international audit standards and international quality control standards issued by IAASB(International Audit and Assurance Standards Board).
The draft clarifies that some standards should be applied to the interim audit for the year ending after Sept. 30 2011, and full audit for the year ending March 31 2012.
You can see Internationalization and clarification of the audit standards as requirements and guidance have been clarified in this draft. While it has become clear to auditors as the rules are now more comprehensive, responsibility has also become clear on who to have responsibility on what matter. Audit firms are required to review its audit policy to adapt this new standards.
IASB updated its work plan on September 30th 2011.
The issuance of the second exposure draft of “Revenue” which was originally planned during September of this year was postponed till fourth quarter (after October) of this year. Besides, the second exposure draft of “Lease” will be issued in the beginning of 2012. Both standards are planned to be finalized in the late 2012.
Expectation towards the second exposure draft of the two standards is high because they have been arguing the matters for a long time.
