Application of IFRS accounting delayed

Friday, July 21, 2011 15:06


On the 20^th of June 2011, the Financial Services Agency (FSA) announced to postpone the application of the International Financial Reporting Standards, giving up its initial goal to make it mandatory for all listed companies to adopt the standards for financial year ending in and after March 2015. In addition, FSA also announced to 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.

The reason of the postponement is said to be: 1) strong resistance among manufacture business circles which are Japan’s historically strongest industry; 2) Many companies are unable to complete the transition to the IFRS system by 2015 because they have already faced immensely increased workloads after being affected by the Great East Japan Earthquake on March 11; and 3) Even US is taking a cautiously approach to adopt IFRS and country like India is still implementing its own domestic accounting standards.

According to Mr. Shozaburo Jimi, Minister of State for Financial Services, the reason of the postponement is that it’s not only necessary to consider how we benefit from its techniques upon application of a new accounting system, but also necessary to consider the history, business culture and customs of the country which have great impact on the enterprises of that country, moreover, it’s also important to consider its close relationship with company law, tax laws and the competiveness of domestic enterprise.

The IFRS which was adopted by the London-based International Accounting Standards Board is based on mark-to-market accounting and has become the global standard in more than 100 countries, especially in Europe. A movement to adopt the IFRS has accelerated worldwide. In Japan, the Business Accounting Council decided in 2009 to require all of the nation's listed companies to use the IFRS for their consolidated financial statements from either 2015 or 2016, if it became mandatory. The council also came up with a schedule to decide whether to make it mandatory by 2012. Besides, voluntary application of IFRS had been made possible for the business years ending on or after 31 March 2010.

Japanese companies have long adopted Japanese or U.S. standards, and the drastic system overhaul is expected to add a massive administrative burden to companies. The postponement may ease workloads at companies' accounting departments for the time being, but at the same time it may also cause confusion for many leading companies that are already preparing for the planned transition to the IFRS in 2015.

Many firms complained that a time span of three years or so between the final decision and the implementation is too short for companies to cope with the transition. “If IFRS application actually became mandatory, a period of about five to seven–year preparation to shift to the IFRS is inevitable”, said by Mr. Shozaburo Jimi.

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