• Home
  • About Us
  • Our Services
    • Company Administration
    • Financial Management
    • Accounting and Bookkeeping
  • Clients
  • News
  • Contact
  • zh
  • ru
  • nl
  • ja
  • fr
  • de

The Future of Accounting Standards in Japan: IFRS or Japanese GAAP

05 Mar 2021
Cross-border, GAAP, IFRS, Japan, Tax Planning
accounting standard, accounting standards Japan, financial management, financial management Japan, GAAP, IFRS, IFRS GAAP Japan comparison, IFRS Japan, IFRS standards, IFRS versus GAAP, International Financial Reporting Standards, J-GAAP, Japan, Japanese companies, Japanese GAAP, Japanese Generally Accepted Accounting Principles, Japan’s Modified International Standards, JMIS, M&A, US GAAP

The four sets of accounting standards in Japan are the International Financial Reporting Standards (IFRS), Japanese Generally Accepted Accounting Principles (J-GAAP), Japan’s Modified International Standards (JMIS) and the United States Generally Accepted Accounting Principles (US GAAP). In this article, we explain why IFRS and J-GAAP are the most prominent accounting standards in Japan. Whereas J-GAAP is mostly used for Japanese small-medium enterprises (SMEs), more and more Japanese companies apply to IFRS every year. As a Japanese company, with or without (foreign) subsidiaries, what should you keep in mind when applying these standards? Is it more convenient to use J-GAAP since it is well implemented? Or is it perhaps more desirable to choose IFRS since this method makes comparing per country more convenient?

IFRS in Japan

IFRS is principle-based, emphasizes balance sheets, and has global standards, with a flexible implementation convenient to use and easy to understand. Both Japan and the US implement GAAP but have adopted IFRS as a bylaw principle. This is a set of detailed rules regarding accounting standards, interpretation guidelines, practical guidelines and more. However, the rules are roughly sketched compared to J-GAAP. Many notes need to be taken with efficient substantiation for a sufficient interpretation of details per company and country. Unlike J-GAAP, IFRS includes non-operating income as ‘other operating income’ and ‘other operating expenses.’

J-GAAP

In Japan, the income statement is emphasized as information for evaluating the asset value required for investors and creditors and the profit and loss statement for a certain period. Japanese accounting standards implement ‘ordinary’ and ‘extraordinary’ profit and loss. Non-operating income – such as dividends and stock interests, deposits and savings – and operating income – such as main business profit – are included. After deducting non-operating expenses (e.g., loss on sales of interest payments and loans), ordinary income is an essential indicator of corporate profitability under the Japanese accounting standards.

IFRS versus J-GAAP

 

 

 

 

 

 

For companies with a subsidiary or subsidiaries overseas, the implementation of IFRS can unify the accounting indicators: Accounting management becomes convenient by comparing everyone’s performance efficiently. Japanese companies without subsidiaries can apply to IFRS as well if they have a capital of 2 billion yen or more, or are newly registered to the stock market. The application is voluntary, as a de facto national policy. At this moment (March 2021), no conclusion has been reached by the Japanese government regarding compulsory applications.

 

 

 

 

 

As stated by the Companies Act, disclosure under J-GAAP is still required, so companies have to prepare multiple reports for both IFRS and the Japanese accounting standards. As IFRS is based on principles, a significant amount of information is necessary, which increases the amount of clerical work involved and the burden on the person in charge.

 

 

 

 

 

 

‘Goodwill’ is the difference between a company’s acquisition price and its book value. Under J-GAAP, a fixed amount is amortized and expensed every year, so profits in the account settlements will inevitably decrease. Goodwill must be amortized within every 20 year acquisition period, but in IFRS, this is not the case. In the IFRS case, goodwill is amortized unless the corporate value drops significantly, resulting in not being recorded as an expense. The value decreases after each period, registered as an impairment loss without amortization.

 

 

 

 

 

 

It will cost a certain amount of money to switch from J-GAAP to IFRS. Changing standards, systems, and audits costs time and money, making companies think twice before switching systems, especially if they choose to do business in Japan only.

 

 

 

 

 

 

Companies that are active in mergers and acquisitions (M&A) can profit in their financial results with IFRS. Since IFRS is a globally used method, many foreign investors understand IFRS better than J-GAAP. Examples of companies applying IFRS that are active in M&A are Rakuten and Softbank.

 

 

 

 

 

 

In December 2018, Japan erased the variances between IFRS and J-GAAP, by bridging the gaps. However, IFRS is different from Japanese conventional accounting standards, which can make application challenging. IFRS is frequently revised, so companies have to consider this as well. As mentioned before, Japanese companies adopting IFRS are increasing but compared to the world, the number of applications is still small, making referred information scarce.

 

In Japan, J-GAAP still mostly applied standard; however, with global IFRS support and more Japanese companies applying this standard, IFRS is most likely the accounting future for Japan. IFRS is frequently revised and has different rules than J-GAAP, so you need to keep up to-to-date with the latest information and knowledge, which is both rewarding yet time and cost-consuming. This track of data can be quite challenging, so many companies leave this part to an expert. If you are looking for an expert to help you with this, feel free to contact us. Global Connect Admin (GCA) already helps multinationals with subsidiaries with IFRS standards, accounting and financial management, and fiscal reports. While they focus on their core business, we assist them with their financial business. Feel free to ask us questions or read other GCA articles.

Related GCA articles

Cross-Border Positions during the pandemic

The Brexit impact on Japan

The Bond Market in EU, China and Japan

Cultural business differences between Germany and the Netherlands – an Overview for the Japanese businessperson who might be working with both countries

The New IFRS 16 in China

Sources

Digima – KPMG Japan

The investment for the future: Hydrogen

20 Jan 2021
Europe, Japan, Netherlands
Europe, Hydrogen, Japan, the Netherlands, TopDutch

Photo by Jeff Kubina

A lot has changed since the 1800s, where during the industrial revolution, humanity produced carbon dioxide (CO2) and other gasses that could harm the climate. The main difference is that these effects used to be mainly local, not global as they are now. However, humanity needing energy sources to survive has not changed in these 200 years. How do we combat global warming? We could stop using electricity and gas altogether, but that is most unlikely. The solution to our problem is using green energy: Now is the time to invest in Hydrogen!

What and where is Hydrogen?

DUJAT describes Hydrogen as a fashionable energy vector due to its potential to support the transition to a decarbonized energy system required to meet the Paris Agreement’s emission reduction goals.

If there is one country doing Hydrogen justice, it is Japan. While Europe is slowly but surely starting with the Hydrogen process, Japan already produces Hydrogen domestically. Hydrogen is made from natural gas and oil and provides energy for residential buildings, experimental power plants and fuel cell vehicles. To show that Japan is the Hydrogen Nation, the First Hydrogen Olympic Games are an inspiration to follow. Now you might wonder, if Japan already uses Hydrogen to provide for heat networks, how is Europe doing at this moment?

TopDutch

Sander Oosterhof, Director of Foreign Direct Investment and Business Development of NV NOM, explained why the northern province of the Netherlands, Groningen, has always been crucial for energy production. The TopDutch region collects interconnected, purpose-driven and people-powered ecosystems. These ecosystems are committed to finding green and digital solutions for global economic, social and ecological changes. In other words: investment in sustainable mobility with electrification, hydrogen technologies and new infrastructures.

According to Catrinus Jepma, Professor emeritus of the University of Groningen & Senior Advisor of the New Energy Coalition, the Netherlands may not be Hydrogen’s leader but the project-planning leader. Currently, the Netherlands and Europe thrive on oil, gas, wind and sun. GasUnie provides windmill parks in the North-Sea and extensive gas infrastructure. However, the gas and oil period is ending, and what if there is not enough sun and wind to produce sufficient energy? How do you store and transport excess energy? To start answering these questions, the Paris Agreement has set up goals for 2030 and 2050 to implement Hydrogen as efficiently as possible. By 2050 the EU aims to be climate-neutral with net-zero greenhouse gas emissions.

Europe’s Valley of Death

Europe needs to have a completely green system; this seems impossible, but 20 years ago, renewable energy was only 10%, whereas it is now 30%. Every 15 years, the goal is to improve renewable energy levels. This includes the transition from blue Hydrogen (natural gas to H2) to green Hydrogen (green gas to H2).

For Europe to move forward, governments need to get through the ‘valley of death.’ Many discussions surround renewable energy, which is not necessarily bad, but crucial decisions need to be made soon. Governments need to support industry investment initiatives in producing, transport, storing, and implementing Hydrogen. This support needs to line up with surrounding countries by, for example, launching a supporting research agenda.

The Dutch have their hands full with the Paris Agreement goals (as the Dutch would say, “Er is werk aan de winkel/There is still a lot to do”), but there are many opportunities. René Schutte, Hydrogen Program Manager of GasUnie, explained how the Netherlands has many options for current and future Hydrogen projects. He calls this the TopDutch call to action.

The Dutch (gas) infrastructure

GasUnie provides access to its system to the public. With the decrease of natural gas and the increase of green gas, CO2 needs to be reduced upfront. What the future holds can be seen in the image above:

  • The Hydrogen infrastructure adjoining the natural gas/biogas infrastructure
  • The increase in green gas production
  • The windmill parks providing power-to-gas
  • The storage and transport of CO2
  • The industry cluster and heat network interconnected with the points above

“I want to invest in Hydrogen projects. What does that look like?”

There is much scaling up to do to increase renewable energy. Current phased roll-outs are implemented with a programmatic approach. These roll-outs ask for a lot of cooperation and funding between governments and industries. Luckily the interest in this Hydrogen project grows. For example, at this moment, the New Energy Coalition is working on HEAVENN: a Hydrogen Valley. International roll-out programs like these are crucial for the continuous development of Hydrogen in Europe.

What now?

Future investments make sure that not only industries but the entire world can continue to grow. We need to continue to think critically about our innovation methods. What are our long-term goals; how do our actions of today impact our future? Are you wondering how the future of your company unfolds? We would love to talk to you about it. In case you and your company are considering investments in Hydrogen, do not hesitate to contact NV NOM, the University of Groningen and/or GasUnie. Let’s go global; let’s go TopDutch!

 

Sources:

DUJAT – NV NOM – University of Groningen – GasUnie – the Paris Agreement – Japanese Olympic Committee

Press Conferences in Japan and the Netherlands: Different news, different actions

28 Dec 2020
Current news, Japan, Netherlands
COVID-19, Japan, press conference, the Netherlands

A press conference can help see the impact the coronavirus has and how each country handles it. The Dutch government and the government of Japan both have stated their significant concerns on the critical situation of the rise of corona cases. You might wonder, “Then the situation in Japan must be just as critical as in the Netherlands.” Yes and no.

Whereas in the Netherlands, the current total cases are around 762.985, Japan has about 221.412 cases¹. If you would show these numbers to a Dutch person, they will most likely react confused to the Japanese’s concerns since these numbers are less than those of the Netherlands. Perhaps it has to do with Japan’s collective culture, while the Dutch culture is significantly individualistic. Or has it to do with actively preventing the infections of the coronavirus? The density level in Japanese cities is more significant than in Dutch towns; thus, a domino-effect could happen without the right actions. Let’s take a closer look at the press conferences earlier this December. Who is speaking, and what are they saying?

¹These numbers are based on the data from HU CSSE COVID-19 Data on 28/12/2020.

The press conference in Japan: Support & Vaccination

On the 11th of December, 2020, at 2:53 P.M., Tamura Norihisa (田村 憲久) the Ministry of Health, Labour and Welfare (厚生労働省), held a press conference. During the conference, he addressed various concerns for those who find it difficult to get by during the year-end and New Year holidays.  Norihisa addressed the vaccination process in Japan, as well.

The government requests local bodies to establish a system by making preparations and arrangements to open temporary contact points and secure locations for temporary lodging during the end of 2020 and 2021. In addition, the Hello Work public employment offices are setting up a system where advisers are on duty to listen to individual circumstances. A prime example of their work is providing support to those who have no place to live due to becoming unemployed during the pandemic.

Norihisa addressed the vaccines from AstraZeneca as the second point of the press conference. The Japanese government has closed an official agreement with AstraZeneca, which will supply 120 million vaccinations for Japan. During the first quarter of 2021, 30 million vaccinations will be provided. Regarding the vaccines, the Health and Welfare Science Council met on the 10th of December to study the system for administering and distributing the vaccines in each local municipality. They want to ensure that the vaccination process goes as smoothly as possible.

Financial help in Japan

Regarding the Special Emergency Petty Cash Funds, the government has extended the deadline for applications following the economic measures. This deadline used to be the end of December 2020, but will now be the end of March 2021. In addition, the maximum payment period of the Cash Payment for Securing Living Quarters will be extended from the current nine months to twelve months. Single-parent households will receive a re-payment of extraordinary special benefits as well. Click here to read more about the financial arrangements (in English and Japanese).

Press conference in the Netherlands: Lockdown

On the 14th of December, 2020, at 7 P.M., the Netherlands’ Prime-Minister,  Mark Rutte, held a press conference. This press conference was more a speech to the people since he announced a strict lockdown to prevent more coronavirus infections. The number of corona infections is increasing, with many new cases added every day. The Netherlands is in lockdown from the 15th of December 2020, lasting until the 19th of January 2021. Whereas during the press conference of Norihisa, the only background noises you could hear were the camera shutters, the background noises during Rutte’s speech were protestors.

Rutte addressed the elephant in the room: this Christmas will be gloomy. From the 16th of December 2020 to the 18th of January 2021, online education will become the norm from primary education to universities. There are exceptions for practical training and personal guidance for students with special needs. Childcare is closed as well, with an exception for parents with vital professions. Meanwhile, the government strongly advises everyone to work at home, unless it is not possible. Only essential shops will remain open, such as supermarkets, financial and government organizations. Other shops and restaurants can only make use of take-away and pick-up services.

Rutte hopes that the vaccination process can start at the beginning of the next year. He calls this process the hope for 2021.

Financial help in the Netherlands

The ministry is releasing a new substantial support package, based on the volume of loss. Subsidies can be applied for from the 15th of December. The higher the loss, the higher the financial assistance. On the governmental website (Rijksoverheid), companies can (re-)apply for support and recovery packages with temporary financial arrangements, social packages and investment measures. The Chamber of Commerce and the employers’ organization VNO-NCW/MKB Nederland have created aid packages as well. Read more about financial arrangements here (in Dutch).

 

We understand that the current happenings around the coronavirus can affect your business. In case you are considering expanding your business to Japan or the Netherlands, but wonder if this is the right moment, and if not, what preparations for the future you can do: please talk to us. We wish to help you in any means possible.

Sources:

Google / JHU CSSE COVID-19 Date – Ministry of Health Labour and Welfare – Rijksdienst voor Ondernemend Nederland – Rijksoverheid

   January 2021  The impact of Brexit is global. The UK and Japan both are big players in world trade. However, will Brexit cause mo… https://t.co/uGD53lARni

Company Info

Global Connect Admin B.V.
Ridderspoorweg 61
1032 LL Amsterdam
+31 (0)20 76 01 540
info@www.globalconnectadmin.com

Contact us

We are a member of the German-Dutch Chamber of Commerce

We are a member of the German-Dutch Chamber of Commerce

Privacy Statement
Legal Notice

Visit our social profiles

LinkedIn

Twitter

WeChat account: globalconnectadmin

© 2015 Global Connect Admin B.V. - All Rights Reserved.