Tokyo Stock Exchange has made a whole renewal of “practical treatment of the timely disclosure of quarterly interim reports” and has released a “format and preparation guide of quarterly interim reports” revised on 1 June, 2010. Major renewal points are as follows.
First of all, when it comes to timing of the disclosure, disclosing within 30 days was thought desirable. However, they have brought down the criteria so that companies could make a disclosure when their investors need the reports (they are required to disclose quarterly interim reports in no later than submitting quarterly reports).
They required all the listed companies to uniformly disclose the same contents in quarterly interim reports, but due to this whole renewal the uniform contents have become limited and the listed companies could choose the level of disclosure considering how much their investors need in the financial statements. Besides, they allowed basic financial statements to be summarized in the disclosure. They carried this out so that companies could meet investors’ need and achieve an earlier and more flexible disclosure. This is because investors required the contents of quarterly interim reports to be the same as that of quarterly reports.
This revision made the timing and contents of disclosure of quarterly interim reports more flexible.
In case a subsidiary commits fraud, a penalty would be imposed, and its cost would be excluded from nontaxable expenses. On the other hand, if a parent company shoulders a penalty for its subsidiary, the cost would be treated as donation, which makes it included in nontaxable expenses to the extent that it does not exceed the limit. However, if the penalty is a heavy burden for the subsidiary, it is possible that the penalty that its parent company pays to lesson the burden would not be regarded as donation. As we see here, there are different cases on this matter.
When there are complicated relations between parent companies and subsidiaries (or if there exists a subsidiary of a subsidiary), we have to be careful of what case we should apply and how to treat the cost.
Now we can see the goal of the ASBJ project of the business
combination (second phase). There is a policy announced
in 202nd meeting of Accounting Standards Board of Japan
(held in 28 May 2010), which is the following.
These are to be changed from current standards.
・“non-controlling interest” will be used instead of “minority
interest.”
・Full goodwill method will become applicable. (Only
purchased goodwill method is applicable currently. In full
goodwill method, goodwill related to minority interest will
also be recognized.)
・Recognition of conditional consideration (, which is not
recognized in the current accounting standard)
・Acquisition costs are expensed (acquisition costs are
capitalized in the current accounting standard)
・Adjustment of provisional accounting should be adjusted
retrospectively (The adjustment is accounted for in the
income).
By the way, they have put off making a decision about
specific accounts related to contingent liability and business
combination.
Within this year, they plan to announce an exposure draft
and revised standards. Wide range of revision can be inevitable
though revised standards have just become effective on this
April.
Understanding of IFRS should be urged to take a measure.
We should learn IFRS first with regard not only to business
combination but also to standards to be expected to change
drastically. In this way, we can adapt faster to revisions of
Japanese standards with more efficiency.
Accounting Standards Board on May 21 2010 held a meeting for
internal control, and considered to take another look at internal
control reporting system, putting on the table opinions and
demands proposed by the Federation of Economic Organization
and many companies.
Major subjects considered reviewing are as follows:
①Simplification and clarification of internal control done by small
and medium enterprises (SMEs).
②Simplification and clarification of internal control that are allowed
after the first year.
③Clarification of other subjects such as addition of more instances
of judgmental indicators for “significant deficiency”.
④Reconsideration of the word “significant deficiency”.
These have become subjected to the review because of the
cost burdened upon companies. Since this also affects internal
control audit, they have to be careful as they should consider
how much auditors can accept when the reporting system levels
its standard down.
Accounting standards on disclosure of segment information
(Accounting Standard 17) and Application Guidance of
Accounting Standards on disclosure of segment information
(Application Guidance of Accounting Standards 20) will be
effective in the consolidated fiscal year and the fiscal year
starting from April 1, 2010.
The major purpose of the revision of this standards is to
introduce “Management Approach,” which is adopted by
international accounting standards. Management Approach
is a method in which company’s management makes managerial
decisions and conducts evaluations based on the information
of each unit consisting a company.
Companies will have to review method of measurement
and categorization of segment information after the application
of the standard.
“Segment information on business unit,” ”Segment information
on location,” and “Sales abroad” were asked to disclose in
the old standard, and some of them are still required disclosing
as “related information” in the new standard. Therefore,
unless method of segmentation and measurement differ,the
same method should be used for disclosure. The difference
of segment information between old and new standard is
whether or not the management decisions and evaluations
are based on the segment information (Accounting Standard 51).
Financial Services Agency of Japan announced on March 31 2010 that Japan and Hong Kong had come to a basic intent agreement of Tax Convention. Japan has already had a Tax Treaty with China, but not with Hong Kong. Therefore, this is good news not only for those companies which have already invested or had business in Hong Kong, but also those which are planning to do so in the future.
Advantages which will be offered by the tax treaty is (1)to enable tax agencies of both countries to exchange information mutually and (2)to reduce the tax rate imposed on income from investment activities (see a table blow). The treaty will be effective after the process of both governments signing and ratifying the agreement. More and more Japanese companies would consider that Hong Kong is as attractive a market as China, and more investment and business in and to Hong Kong should be expected.
| Income from investment |
Category |
Tax Rate |
| Dividends |
Between parent and subsidiary companies（Ratio of shareholding over 10％） |
5％ |
| Others |
10％ |
| Interest received |
Governments |
Exempt |
| Others |
10％ |
| Rental fees |
― |
5％ |
On April 30, 2010, Japanese Institute of Certified Public
Accountant released 6 revised exposure drafts of Auditing
Standards Board (listed below) based on a new draft policy
of revision of exposure drafts of statements of Auditing
Standards Board (released on Feb. 26, 2010). They ask for
opinions on these revised statements until May 31, 2010.
・Analytical Procedure
・Communication on flaw of internal control
・General purpose of auditing financial statements
・Written Representation
・Communication with Internal Auditors
・Confirmation
Total number of revisions of statements will amount to 37,
and the number has reached 20 out of 37 by this release.
The reason why as many as 37 statements are exposed to
revision is to synchronize with the 37 of new International
Standard on Auditing and International Standard on Quality
Control released by International Auditing and Assurance
Standard Board for Clarity Project, which had been finished
on March 31, 2009.
This movement represents that not only the internationalization
of accounting (introduction of IFRS) but that of auditing
should be required in our country.
This application of the revision will begin from the fiscal
year starting April 1, 2011. Therefore, it is better that
accountants and auditors deal with the corresponding
matters as soon as possible.
We reported in our website on Revision of Group Corporation Tax Act 2010 on March 19. Today we would like to talk about how much impact it would make when Special Application of reduced tax rate for Small and Medium Enterprises (SME) becomes inapplicable due to that revision.
According to the tax system applied before the fiscal year 2010, t was possible that SME whose capital stock is under 100 million yen can apply to the reduced tax rate of 18% if the taxable income is under 8 million yen.
However, this can not be the case if an SME is a subsidiary company wholly owned by a parent company whose capital stock is more than 500 million yen.
Therefore, companies fit in this case have to pay attention to it when they calculated the effective tax rate with 18% because it will generate the impact on the deferred tax. This revision becomes effective after the year starting April 1, 2010.
Financial Services Agency of Japan published
“Misunderstandings on IFRS” on April 23. Explanation is
given towards the misunderstandings that we often hear
so that proper understanding of IFRS is encouraged.
Followings are the examples.
(Wrong) Listed companies have to get prepared for the
IFRS because its application is going to be obligated very
soon.
(Right) Listed companies which meet certain condition can
apply the IFRS to their consolidated financial statements
voluntarily.
(Wrong) According to IFRS, all the accounts are subject to
measurement by fair value (market value) including land
or fixed assets.
(Right) Scope of measurement by fair value (market value)
in IFRS would not differ much from that of Japanese
standard.
This publication seems to be information offered for
general people to know widely rather than for people in
charge of company’s accounting. So, those who have
already started studying IFRS might say that they have
already known them. However, we think that this is worth
reading so as to know what types of misunderstandings are
generally created regarding IFRS.
Listed companies will be asked have in their companies one or more than one independent executive by the next day of the end of regular stockholders’ meeting for the year ended after March 1 2010.
Independent executives are outside directors or outside auditors who have no conflicting interest with general shareholders’.
The Corporation Law has already established the system of outside auditors and outside directors. However, this is not functioning as it should because some of them are from companies within their group or from their clients or suppliers, and there are many cases in which people not necessarily neutral to the company are positioned as independent executives. In order to break this protectionism by companies’ executives and establish the substantial independency of outside directors, they have asked explicitly the listed companies to have independent executives.
In the business operation where independent executives with no conflicting interest with general shareholders, it is expected that decisions are made with more consideration for general shareholders’ interest.
