Currently, IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board) are collaborating to urge convergence of accounting standards between IFRS and US-GAAP. They planned to complete all the process by June 2011 at first, but they announced a Progress Report on April 21 2011. The followings are its contents.
They are going to issue new standards on “Consolidated Financial Statements,” “Joint Arrangement,” “Retirement Benefit” within a several weeks from now. And also new rules on “measurement of fair value” and “other comprehensive income” are going to be issued within a several weeks.
They say that priority of “Financial Instruments,” “Leases,” “Revenue,” and “Insurance Contract” is higher than any other ones in the process, pushing them towards the completion.
On the other hand, they permitted delay of convergence projects on “Presentation of Financial Statements” and “financial instruments with equity feature,” making its completion set after the second half of 2011.
This revision of the schedule could affect the IFRS convergence schedule in Japan.
Financial Services Agency announced, on April 1 2011, that they submitted a proposal of revisions of CPAs and others to the Japanese Diet, and it seemed sure that creation of new accountants named Corporate Financial Accountants would be created. However, the proposal has been denied mostly by opposing party, and it will not be approved in this year’s session.
Some are raising questions on its creation for its necessity and the discussion process of the proposal. It was not well established by enough discussion after all. But, there are still grave problems on CPA job-seekers and waiting-to-be CPAs (who has already passed the exams but not yet registered as a Certified Public Accountants), and they need solving.
It is a huge loss not only for future CPAs but also for the nation itself that they could not make good use of excellent human resources. We wish that better reform would be proposed within this year.
JICPA (Japanese Institute of Certified Public Accountants) made an announcement on the title
■Example list and accounting treatments on the natural disaster.
1. Loss of fixed assets and inventories
→corresponds to the accounting treatment on insurance, requiring notes
2. Inspection and disposal cost for assets broken by the disaster
→if the inspection or disposal is done by the end of the fiscal year, they are accounted as payables. If either of them is not done by the end of the fiscal year, provision should be accounted with conditions of provisions satisfied.
3. expenses to recover the assets or expenses to prevent assets from losing their value.
→accounting treatment according to the repair cost should be applied.
4. Transfer cost of factories and operating location forced by the disaster.
→entry of loss on transfer cost should be made, and notes should be posted for the overall explanation.
5. Fixed cost generated during the stoppage period of operation caused due to the disaster.
→accounted as a loss unless it is recognized as a cost.
6. Monetary token of sympathy or condolence money to business partner who experienced the disaster, and supporting expenses for recover (including loos on exemption of payables).
→corresponds to the accounting treatment of entertainment expenses or donation.
7. Monetary token of sympathy or condolence money to employees or executives who experienced the disaster, and supporting expenses such as hotel expenses→corresponds to the accounting treatment of fringe benefit.
■accounting and auditing event to be considered regarding the disaster.
1. judgment of realizability of the deferred tax assets
2. deterioration of financial state of the business partners
3. fall in price of securities held
4. impairment test of fixed assets
5. others (such as going concern)
The current situation is making companies more difficult to handle the year-end reporting, but this announcement will give auditors and companies’ accountants a direction of how to deal with the events caused by the disaster in terms of accounting.
According to the German Corporation Tax Law 8c, if an individual or a group acquires more than 25% interest of German corporations or 50% interest within 5 years, he or it will not be able to take advantage of all or a part of the carryforward of unused tax losses. As an exception, if the purchase of the share is for the purpose of corporate restructuring, it does not apply. However, the European Committee recognized that the carryforward of unused tax losses is an unfair national support, so they asked Germany to remove the special treatment to German companies whose performance is not well.
Since German companies hold more carryforward of unused tax losses than expected, the determination of the removal of the special treatment would stop the decreasing tax revenue. On the other hand, most of those ill companies do not retain earnings within themselves, which would make it difficult for them to restructure the companies. Companies that have subsidiaries or such would have to be very careful on this matter.
Tokyo Stock Exchange announced on 2 February 2011 “disclosure awards”. This is an award that values voluntary disclosure that is not required by laws. Any disclosure of companies that received this award is convincing in a way that not only the contents are abundant but also disclosure method to attract people’s attention works well enough for people to easily understand the contents. Corporate Social Responsibility (CSR) is also one of the features seen in the voluntary disclosure, which is not of course required by statutory disclosure.
By the way, ISO26000 issued last year with regards to CSR. According to the ISO/SR committee in Japan Standards Association, this is just a guidance standard, not a acknowledged standard. Therefore, even many of awarded companies have not followed the guidance yet. Since this standard interprets that social responsibilities are not something only companies take, it mentions a word “Social Responsibility (SR)” instead of CSR.
It seems that ISO26000 will be a often-discussed topic in talking about disclosure, but that is only if this “not acknowledged standard” is to be welcomed by companies.
Japanese Institute of Certified Public Accountants issued an exposure draft on the temporary audit treatment of depreciation on February 24 2011 (they are publicly asking for opinions until March 17 2011.)
This revision is to unify the application of the standards below and other reports.
– accounting standards and implementation guidance on correction of accounting changes and errors
– 2011 Tax Reform (note: its details could change since any government ordinance has not been issued.)
– unification of the Audit First Committee Report 32 “Audit treatment on the application, change and presentation of useful life”
Keys that you should remember is the followings.
1. Stipulated the treatment regarding the depreciation method and change of it.
– They clarified that the depreciation method is included in accounting policy.
– Changes in the depreciation method are “Changes in accounting policy, but retrospective adjustments are not applied.
2. Clarified the treatment of changes in useful life
– There are two types of the changes in useful life; “Correction of errors made in the past” and “Changes in accounting estimates”
In the case of “Changes in accounting estimates” (and also that useful life used in the past was reasonable and changed useful life is also reasonable), differences from the changes should be recognized through profit or loss over the rest of the estimated useful life in the future.
In the case of “Correction of errors made in the past” (and also that the estimation of useful life was not reasonable and changed useful life is reasonable), they should restate the amount retrospectively.
3. 2011 Tax Reform
– They should apply the depreciation rate that multiplies a rate calculated by straight-line method by 2.0 to assets to be acquired after April 1 2011.
– Regarding assets subject to depreciation by a fixed rate method using current depreciation rate, they could change the rate, if they submit documents by the deadline of tax return for the year that ends after April 1 2011, to the depreciation rate applicable after the revision.
They should apply them for the year that ends after April 2011.
Current tax exemption system of foreign tax and dividends will be expanded according to the 2011 Tax Reform. Submitting the income tax return on time is required to apply to both exemptions, but the reform enables us to apply to them even though we submit the income tax return regardless of the submission deadline of the income tax return. The limitation of the exemption amount is allowed to be more than the amount written in the return. This reform can be applied to the tax return of which deadline comes after April 1, 2011.
Accounting policies are the ones that companies require to prepare, according to IFRS’s principle-basis accounting, in order to detail accounting policies that companies adopt. It is very important to prepare accounting policies so that they could achieve a quality financial reporting system and effective work process.
If each subsidiary and affiliated company submits financial reports to a parent company in the way they prefer, it would become very complicated for the parent company to compile the financial reports into one. Nonetheless, IFRS requires them to make the same accounting treatments against the same transactions within the same group. Then, the accounting policies come to attention. This makes the communication of information smoother and enables standardization of work flows of accounting or financial. Since the intranet system and method of collecting information within the group will be also based on accounting policies, not only financial reporting system but also internal control will be well prepared.
It is true that introducing accounting policies would give companies heavy burden. But, they could think that this is the best moment to review the group control of companies, and we think they should.
2011 Tax Reform will have a great impact on the exemption of purchase tax regarding consumption tax.
When the percentage of taxable sales of all sales is over 95%, all of the consumption tax on taxable purchases was included in the calculation of the exemption before. However, the 2011 Tax Reform will change the rule in the way that when taxable sales are over 500 million yen, only taxable purchases that corresponds taxable sales are included in the calculation of the exemption, regardless of the percentage of taxable sales.
Measurement of whether the taxable sales are over 500 million yen is based on taxable sales during the tax period.
This revision will be effective from the year beginning from April 1 2012.
HOYA Corporation issued on January 31 2011, “A notice of preparation of consolidated financial statements by designated international accounting standards”. This means that they will disclose statutory financial statements required by Financial Instruments and Exchange Act by IFRS instead of current J-GAAP.
The firm had already applied IFRS to its annual report issued on Dec.21 2010, which they voluntarily disclosed. Since they applied “the first-time adoption” and the report came out with audit report, the annual report had been seen as preparation of early and voluntary adoption of IFRS.
As we discussed in this blog on Dec. 24 2010, listed companies that have been thinking and working on to apply IFRS voluntarily counts about 6% of all. We hear that some companies are working on training sessions for their employees. Therefore, we may soon hear some news from a variety of companies about application of IFRS other than Nihon Dempa Kogyo.
