“Report on the disclosure of earnings forecast of listed companies” announced on July 29 2011 by Tokyo Stock Exchange reports that earnings forecast should be voluntarily disclosed. And also, it says that they do not ask for any reason of why earnings forecast is not disclosed.
Most companies disclose earnings forecast in the brief report of financial statements. It is a burden that they have to disclose adjusted earnings forecast every time it becomes highly possible that formerly disclosed earnings forecast could differ from the newly estimated earnings forecast.
On the other hand, investors use the forecast to make their investing decisions and companies could see in number how they will grow in a year.
Earnings forecasts are considered as one of the communication tools between companies and investors. Therefore, balance between cost and benefit should be taken into account by listed companies.
Nippon Sheet Glass Company voluntarily disclosed quarterly financial statements based on IFRS in the first quarterly report for the year ended March 2012. This is the forth case in Japan which disclosed them voluntarily, following Nihon Denpa Kogyo, HOYA, Sumitomo Corporation.
There could be seen a large impact on operating profit, which was 8,515 million yen in March 2011 (increased 137.9%), and 3,717 million yen in the first quarter of the year ended March 2011(increased 59.3%). Major difference between J-GAAP and IFRS that impacted the company’s financial statements were “goodwill”, which shall not be amortized in IFRS, thus decrease of the expense, and “actuarial difference” of the employee benefit accounting, which shall be recognized as other comprehensive income.
Judging from the above, it is quite difficult for investors to compare IFRS financial statements with non-IFRS financial statements as application of IFRS will alter the companies’ financial position and performance. Lack of comparability is crucial when you think about how they procure funds and other stuff in this global economy.
Tokyo Shoko Research conducted a survey on companies which consider voluntary application of IFRS, and it turned out that 105 companies answered positive about it. It is important for companies to understand the globalization in the accounting field and apply IFRS early and voluntarily. We expect them to take a lead on IFRS while Accounting Standards Board of Japan and Financial Services Agency are dragging the matter for long.
Shozaburo Jimi, Minister of Financial Services, has been reappointed under the regime of the cabinet of Prime Minister Yoshihiko Noda, newly appointed on September 2, 2011. Minister Jimi made a comment on when to apply the IFRS in June, in which he indicated that this would not be directly led by politicians. Therefore, this reappointment would have no influence on the due date.
More interesting story was there shortly before the event described above. Three people were appointed as councilors of Financial Services Agency on August 29 2011 for advice on the IFRS project, and they are not academics or analysts, but from economic organizations.
So far, economic organizations agrees to the way the United States has adopted, which is to spare 5 to 7 years to prepare for the application of IFRS. Knowing that councilors are from economic organizations, we could kind of see the path we would take, To follow the United States.
“Accounting standards of asset retirement obligation (accounting standards 18) became effective from the fiscal year beginning in March 2011. It is interesting enough that percentage of asset retirement obligation over total asset in the retail industry was researched to be 1.06%, the second highest of all the industries after electric power industry.
As retailers often utilize rental assets to expand their business, retailers became influenced a lot by the standard. Especially, restaurant business records outstanding ratio of 2.07%, which doubles the retailers’. And one of the reasons of this result is that since it’s possible to reasonably estimate the useful life of stores by basing on the actual experience of disposal, many retailers recorded liabilities as asset retirement obligation.
“SME accounting guidance 2011” was issued on July 20, 2011 by the “Committee of guidance preparation on SME accounting” which consists of four major relevant institutions; Japanese Institute of CPAs, Japan Federation of Certified Public Tax Accountants’ Associations, Japan Chamber of Commerce and Industry, and Accounting Standards Board of Japan. This is an accounting guidance referred to by SMEs when preparing financial statements. Revised are the followings;
1. Revision of the treatment of notes on Change in accounting policies, estimates and errors
2. Revision of the definition of bonds held to maturity (with intention to hold bonds to maturity)
3. Revision of terms in the statement of shareholders’ equity (end of the previous year → beginning of this year)
Reference: Accounting Standards Boards of Japan
The revision of the guidance of this title was issued on July 8 2011 by JICPA. This is going to be effective on the (consolidated) quarterly reviews for the fiscal year beginning on or after April 1 2011.
①Treatment of the procedure of the quarterly reviews on comparative information
If quarterly information in the past has to be restated, they have to consider whether the information is properly presented and classified.
②Disclosure of quarterly audit reports
As the preparation of the first and third quarterly statements of cash flows has become voluntary (not mandated), the scope of the quarterly reviews will change.
And the quarterly audit reports made by auditors will become more clarified and understandable in the way that they made the classification clearer by putting titles on each of the following, whose contents, by the way, have not altered since before the revision; (1)scope of the quarterly reviews, (2)executives’ responsibilities, (3)auditors’ responsibilities, (4)auditors’ opinion.
Sumitomo Corporation disclosed the financial report for the year ended March 31 2011 in accordance with the IFRS. It is remarkable that they made an early adoption of IFRS9. According to the measurement by IFRS9, they have to use the amortized cost or FVTPL (Fair Value Through Profit or Loss), and FVTOCI (Fair Value Through Other Comprehensive Income) is also permitted to use.
They adopted this (FVTOCI) to so-called cross-holding of shares. The reason for which they used it is that “they do not regard the change in the fair value as an index for the evaluation of their business performance because this is meant to extend the profit-oriented structure by maintaining and strengthening relationships with investees”. In this way, they recognize the change in the fair value in the other comprehensive income, and they can’t recognize the unrealized profit in the profit or loss. After this disclosure, more and more companies will follow this way as many of Japanese companies cross-hold the shares in their business practices. However, we would like to pay attention to how many of foreign companies, especially US and European global companies, are going to adopt the FVTOCI.
Financial Services Agency determined last year that when an executive receives more than 100 million yen for their remuneration, the company which he or she belongs to has to disclose the amount of the remuneration and the name of the recipient. This policy was obliged for the purpose of strengthening corporate governance, and disclosure should be included in the financial reports.
The end of this fiscal year will see the second year of this disclosure. Last year’s disclosure was not as clear as expected in the way that their reports did not reveal how they had determined the amount of remuneration. This year, we expect them to be more accountable so that company executives can fulfill their duty of accountability for their shareholders, which is seen as a function to offer appropriate information.
Financial Services Agency determined last year that when an executive receives more than 100 million yen for their remuneration, the company which he or she belongs to has to disclose the amount of the remuneration and the name of the recipient. This policy was obliged for the purpose of strengthening corporate governance, and disclosure should be included in the financial reports.
The end of this fiscal year will see the second year of this disclosure. Last year’s disclosure was not as clear as expected in the way that their reports did not reveal how they had determined the amount of remuneration. This year, we expect them to be more accountable so that company executives can fulfill their duty of accountability for their shareholders, which is seen as a function to offer appropriate information.
We wrote on the “right-of-use model” of the Lease draft announced by IASB and FASB before. ASBJ is considering the revision of the lease standard after the announcement was made, and collecting opinions for the discussion point of the lease accounting.
According to the right-of-use model, all of the lease transactions are regarded as the acquisition of the right of use of the lease assets, including the operating lease. This could get rid of the arbitrariness of the category between the operating lease and finance lease. However, there could be a variety of lease contracts, and their nature as services or length of the lease period could differ. Therefore, some criticize the model in the way that the unified accounting treatment would not reflect the economic consequence of each transaction. Besides, as they need to recognize the operating lease that is not currently subject to the recognition, its cost could exceed the benefit of the users of financial statements.
So far, ASBJ are still discussing the collected comments, and so wee need to pay attention to the revision to come.
If a corporation experiences losses that attribute to the Tohoku Earthquake, estimated expenses required for repair of its inventories or fixed assets (either case 1 or 2, whichever bigger amount) can be excluded from its taxable income as special account for losses due to the disaster.
1. The amount of differences between original book value of the damaged or lost assets (written-off inventories excluded) and measured value at the end of the fiscal year.
2. The amount of estimated expenses such as disposal cost, recovery cost, or cleaning cost of rubbles on damaged or lost assets, which are estimated to spend within a year after the disaster. But, this is only about expenses estimated to be spent after the end of the fiscal year.
We would like every company which experienced the devastating earthquake to make the most of this special treatment of taxation.
