068 An exposure draft on the temporary audit treatment of depreciation
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.
