International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) issued an exposure draft “Leases” on August 17 2010, and Japanese version was released by Accounting Standards Board of Japan (ASBJ) on October 15 2010. This revised a lot of articles listed on the IAS17 “Leases”, and today we will talk more about it here.
This ED suggested an adoption of “right-of-use model” in the accounting of leases, which would make a drastic change to the accounting treatment by lessor and lessee.
From the lessee’s side of the story, the classification between finance lease and operating lease can be no longer seen, and when the lessee has an operating lease contract, the leased asset and lease liability have to be recognized at the same time.
On the other hand, lessor’s accounting depends on whether or not the lessor retains an exposure to risk or rewards accompanied with original assets. If an important risk or rewards are retained, they should apply performance obligation approach (in which they continue the recognition of original assets and recognize lease receivable and lease liability. This is considered to be a stricter accounting method than operating lease). If not, they apply derecognition approach, which is the same accounting method as the currently effective one.
We suppose that a revision of Japanese accounting standards on this matter will be considered because of this ED.
“Discussion about accounting standards for unlisted
companies” has been held several times since March 2010,
and they submitted the result as “a report on discussion
about accounting standards for unlisted companies.”
Globalization of accounting standards has been seen
everywhere towards its realization. The same situation can
be also seen in Japan, where Japanese accounting standards
has been hurriedly made to step closer to International
Financial Reporting Standards (IFRS) as a convergence.
However, needs of unlisted companies differ from listed
companies. Therefore, they are considering whether or not
the converged accounting standards should be applied to
unlisted companies. In the discussion mentioned above
they discussed how it should be, widely considering the
reality, situation and their characteristics of unlisted companies.
This report also has a “guideline of accounting standards
for Small and Medium Enterprises (SMEs),” which has been
designed to improve the quality of SMEs’ accounting and
shows one of the directions as accounting standards that
they can apply.
According to the 2010 Tax Reform, they need to fulfill the
three conditions in order to make the 50% devaluation
applicable to the loan land for business housing; business
succession, ownership, and continuation of the business.
However, business successor cannot be confirmed during
the term of declaration, depending on the situation. In this
case, can the special treatment be applicable?
National Tax Agency revealed its opinion that it is applicable
if they submit “certificate of division within 3 years after the
term of declaration” in the time of declaration of inheritance
tax even in the case above.
We have to be careful when we fall under this case.
Tax Reform in 2010 has enabled parent companies to take over the deficit when wholly owned subsidiaries dissolved after October 1, 2010, and to make it tax-deductible from gross revenue as a carry-over of a deficit. The date of the dissolution of subsidiaries is the date when final residual properties of theirs become fixed, and the tax deduction becomes effective from the accounting year to which the following day of the fixation of the properties belongs.
However, instead of this reform, loss on cancellation of shares cannot be included in nontaxable expenses according to the 2010 reform.
A brand new Jasdaq Securities Exchange has just opened
on 12th October, 2010 in the Osaka Stock Exchange.
Jasdaq had been already merged by the OSE and in April
this year, and the OSE had been managing the Jasdaq market.
They put Jasdaq together, as a market, with Nippon New
Market Hercules which was securities exchange for emerging
companies.
Activation of the securities market was expected, but
trades of the first day ended dull. We hope this market will
become a place to make investment circulate more.
The Japanese Institute of Certified Public Accountants
submitted on 30th September 2010 a summary of comments
on the exposure draft “presentation of the subheading of
other comprehensive income (revision of IAS1)” publicly
announced 27th May 2010.
There are comments such as “change of the title from
‘comprehensive income statement’ to ‘net income and other
comprehensive income,’” and “separate presentation of the
recycled and the non-recycled in the other comprehensive
income when the recognition canceled.”
In Japan, Accounting Standards 25 “Accounting Standards
on the presentation of the comprehensive income” was
publicly announced on 30 th June 2010, and we have to pay
attention to the adjustments of IAS1 to be made in the near
future.
The Ministry of Justice announced publicly on 30th July 2010 that the Ministry would revise some of the Rules of Financial Statements in Companies Act, along with the announcement of “the accounting standards on presentation of the comprehensive income” by the Accounting Standards Board of Japan. They are asking for opinions publicly before the enforcement. These Rules of Financial Statements are something provided as an ordinance proposal of the Ministry of Justice that stipulates the contents of financial statements mandated by Companies Act.
This revision allows a subheading “valuation and translation adjustments” to be presented as either “valuation and translation adjustments” or “accumulated other comprehensive income.” On the other hand, the accounting standards demand that it should be presented only as “accumulated other comprehensive income.”
So, there seems to be a widening gap between the accounting standards and the ordinance of the Ministry of Justice. We could say that the Ministry of Justice takes into consideration the SMEs (Small and Medium Enterprises) which are obliged to prepare financial statements based on the ordinance and for which it is tough to apply the new standards. However, it is expected that the difference between the accounting standards and the ordinance of the Ministry of Justice should be unified somehow and the adjustment should be made.
We wrote about the revision of trigger tax rate and share rate on 3rd August 2010. Today we talk about provisions of exclusion from the application when a company is a special foreign subsidiary.
There are several criteria for a company to be exempt from Controlled Foreign Companies Law, and they have changed the business criteria and irrelevant criteria. The business criteria did not include possession of shares, but now it does include if the share is the one of controlled companies possessed by a controlling company.
In addition, transactions between a controlling company (a parent company) and controlled companies are not considered as transactions between associated companies if they are wholesalers. Therefore, business holding companies and parent distributor are not subject to Controlled Foreign Companies Law any more, and more and more companies go abroad to run their business worldwide. This revision is going to be effective from the year beginning after 1st April 2010.
Currently, Corporate governance and revision of Corporation Law are taken into consideration by related ministries and agencies.
“Corporation Law Committee of Legislative Council” in Ministry of Justice is consisted mainly of scholars and their focus is on revision of the law. On the other hand, “Corporate Governance Network Committee” in Financial Services Agency is consisted mainly of professionals, and they exchange their opinion.
Both are conducting good analysis of the current situation though purposes of arguments are different. We should see not only the result of the “enforcement of the supervising function” but also the process of how the result comes out so as to achieve deeper understandings of corporate governance.
Auditing Standards Board announced on 27th August
2010 an interim report “auditing tools –Audit Plan-”
International Auditing and Assurance Standards Board
(IAASB) of International Federation of Accountants (IFAC)
are currently undertaking Clarity Project. And in order to
correspond to it, they are creating new Auditing Standards
Board Reports and revising the existing ones, which made
them think that they also need to create and announce
publicly auditing tools based on new Auditing Standards
Board Reports.
Audit procedures and tools are to be reconsidered in
terms of their differences as they might be effective from
the accounting year beginning after April 2011 at the earliest.
