Accounting Standards Board issued on January 20, 2011 “Understandings of Revenue from Contracts with Customers”, collecting opinions till March 28, 2011.
It reports 9 issues such as ①its scope, ②recognition, ③measurement, ④onerous performance obligation, ⑤contract costs, ⑥presentation and notes.
The following ideas are the basis to understand the issues. “An entity recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the considerations that it receives, or expects, in exchange for those goods or services.” This has been proposed as “Revenue from Contracts with Customers (Exposure Draft)”in the name of International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB).
“To depict” and “in an amount that reflects the considerations” affects to recognition of revenue and measurement method. These are issues that Japanese accountants are not familiar with, therefore it will take us a little bit of time to understand the concept.
In the United States, they will decide within this year
whether or not the application of IFRS should be obliged
for the US reporting system of financial statements. FASB
(Financial Accounting Standards Boards), which is the
entity that sets out US accounting standards, made an
agreement with IASB (International Accounting Standards
Boards) in 2002 that they unify the significant differences
between two accounting standards (The Norwalk Agreement).
Based on this agreement, Memorandum of Understandings
(MoU) was exchanged, and that is the start of “MoU Project”.
They have been working on revising IFRS to dissolve the
material differences, which is due June 2011. It is said that
MoU Project will make a drastic change to IFRS relating to
“Revenue”, “Leases”, “Presentation of Financial Statements”,
and Financial Instruments”. We are going to see a lot of
changes to IFRS this year. They also say the project is in the
delay and the reform of the IFRS will be done after July 2011.
2011 Tax Reform has been ratified by the Japanese cabinet,
and abolition of allowance for bad debts will be planned.
Currently, allowances for monetary receivables both for
each case and in bulk are included in the taxable expenses.
However, according to the tax reform, neither of them will
be recognized as tax-deductible expenses except for banks,
insurance companies, and small and medium enterprises.
Therefore, gap between corporate accounting and tax
accounting will become larger in terms of tax effect accounting.
Consequently, more temporary differences are found in the
accounting book.
Tokyo Stock Exchange issued a general plan of “improvement
of credibility of Mothers and preparation of listing system
for more activation of the stock market” on Dec. 28. It especially
covers a plan for recovering its credibility as a market after
the last year’s revelation of a window-dressing, and it also
requires market players to make some effort. Therefore, they
have asked Japanese Institute of CPA to improve the quality
of audit, and JICPA issued a related document accordingly.
It seems that accountants and auditors have lots to deal
with in their work; IFRS and revision of internal control and
quarterly reports. It is going to be a tough year because they
have to adapt themselves to changing situations as it was
last year.
An exposure draft of “accounting standards on quarterly
reports,” “interpretation guide of accounting standards on
quarterly reports”, and revisions related to them.
The purpose of the revision is to widely simplify quarterly
reports, and major contents are as follows:
・To allow them to leave out a statement of cash flow in the
first and third quarter period. In this case, the amount of
depreciation and goodwill should be noted.
・To delete some notes (change of presentation method,
simplified accounting treatment, net assets per share, stock
options)
・To revise contents of notes
Since quarterly reporting system requires timely and
quick presentation of reports, the simplification of this time
seems to be fairly meaningful on the condition that the
information important enough for investors to make a
decision still remains in the reports.
International Financial Reporting Standards will be obligatorily applied in 2015 at the earliest. However, Voluntary application has been already permitted in the year ended May 2010. The first adopter in Japan was Nihhon Denwpa Kougyou Co., Ltd.(NDK).
The runner-up will be Sumitomo Corporation, who will disclose financial statements by IFRS in the year ended May 2011, and next comes Nippon Sheet Glass Company, Ltd on 2012. Other early preparers are Nissan, Fujitsu, and Panasonic. The IFRS wave will arrive earlier than the obligatory application day.
One of the major differences between J-GAAP and IFRS is the idea of disclosure. Since IFRS does not articulate detailed rules and only shows the principles, rules of disclosure and accounting standards are prepared by each company. Freedom of format and writings is given according to principles, so companies could plan out format and what to write in their report for their own.
How will early adopters’ reports come out? We are looking forward to seeing it.
Tokyo Stock Exchange issued on Nov. 15 a survey report about preparation of IFRS.
According to the report, there are two-thirds of companies which has started preparation to apply IFRS in the year 2015 or 2016, and quarter of companies have not started anything yet. Only 4 companies consider its early adoption.
By the way, we haven’t seen any early adopter after Nippon Denpa Kogyo Corporation, but some of them (Sumitomo Corporation and Nippon Sheet Glass Co.,Ltd.) are planning to adopt it early. However, since, like above mentioned, not so many companies consider its early adoption, those early adopters’ disclosure will be important precedents for us.
International Financial Reporting Standards Foundation (IFRSF) issued on November 19 2010 “Depreciation and IFRS” as Occasional Education Notes, and Accounting Standards Board issued an interim translation of it on December 3 2010.
This includes the information that would be good references when applying IAS16. The followings are contents of it and please see the original if you are interested.
・Accounting treatments of each component of fixed assets
・an explicit estimate of residual value
・an explicit estimate of useful life
In today’s Japanese accounting practice, depreciation of fixed assets are often made in compliance with useful life, residual value, and depreciation method articulated by Corporation Tax Act. While changing the accounting system to IFRS, they are to be determined by each company. Companies and auditors will be required to make a decision in many cases and carry heavier burden for that, so they should be well prepared.
Our audit corporation are ahead in that sense because we have already reached the place where we publish an instruction book of IFRS, “A complete guidebook of the introduction of IFRS for practical cases with CD-ROM.” If you are interested, visit Amazon.com where you can acquire our book.
http://www.amazon.co.jp/s/ref=nb_sb_noss?__mk_ja_JP=%83J%83%5E%83J%83i&url=search-alias%3Djp-books-tree&field-keywords=%82h%82e%82q%82r%8A%AE%91S%93%B1%93%FC%83K%83C%83h
Now that group income taxation system has been newly established, accounting system committee’s report 6 “implementation guide on tax effect accounting in consolidated financial statements” and 10 “implementation guide on tax effect accounting in financial statements” has been reformed and issued on September 3, 2010.
This reformed implementation guide clarifies how to deal with the tax effect accounting of the group income taxation system.
In the group income taxation system, they do not impose tax on transactions such as assets transfer between corporations where one is wholly controlled by another. This is a system established according to the reality that corporations in a group administrate their business as one entity such as in the way of a holding company. This taxation system became effective from the transactions made after October 1, 2010.
This makes a huge impact on non-listed companies because not only listed companies but all the companies are obliged to apply it if they have wholly controlling relationship.
Accounting Standards Board has made a concrete argument
regarding the simplification of quarterly reports in the 211th
and 212th session of the committee. Especially, they argue
that the statement of cash-flow should disappear in the first
and third quarterly reports.
In the 211th session, they made an argument from the
standpoint of preparers of listed companies. We could
understand that the burden should be lowered from preparers.
On the other hand, investers’ needs towards the CF statement
lack their objectiveness.
They argue that the CF statementshould be disclosed as
they have been. Although we understand that investors need
to evaluate the seasonal variance of the companies performance
and risks that companies hold, it seems that not all of the
elements that CF statement offers are necessary for them.
The following 212th session saw a conclusion that they
should make a more detailed disclosure of non-monetary
items (such as depreciation and provisions) in order to
balance both preparers’ and investor’s needs.
The meaning of this conclusion in the 212th session is that
they disclose information with which investors could make
a statement of cash-flow by themselves. Details might change.
Nevertheless the simplification of quarterly reports will be
surely realized.
