Japan, a constitutional monarchy and the third largest economy globally, has a complex framework for financial reporting governed by the Accounting Standards Board of Japan (ASBJ). Companies can choose from four accounting standards for consolidated financial statements: Japanese GAAP, designated IFRS, US GAAP, and Japan’s modified international standards (JMIS). The ASBJ develops these standards, with designated IFRS allowing voluntary adoption under specific criteria to promote international accounting practices.

1. Financial Reporting in Japan

2. Japan
 It is an island country in East Asia. It has total of 6852 island.
 Japan is constitutional monarchy and sovereign state whereby power
of the Emperor is limited. Executive power is wielded chiefly by the
Prime Minister and his cabinet, while sovereignty is vested in the
Japanese people.
 Japan is the 3rd Largest national economy in the world, after the
United States and China, in terms of nominal GDP, and 4th largest
national economy.
 Popular Cities – Tokyo, Kawasaki, Yokohama etc.
 Stock Exchange - Nikkei 225
 Language – Japanese
 National Sports - Sumo

3. Standard Setting Body
 Accounting Standards Board of Japan (ASBJ), under the auspices of the Financial
Accounting Standards Foundation (FASF) is responsible for the development and
deliberation of accounting standards in Japan.
 ASBJ is a private sector independent accounting standard-setting board which also
contributes to the development and improvement of international accounting standards.
 Accounting standards set by the ASBJ are subject to endorsement by the Financial
Services Agency (FSA), a Japanese government agency.

4.  Financial statements are prepared, in principle, in accordance with accounting
principles generally accepted in Japan (J GAAP) as issued by the ASBJ.
 For consolidated financial statements of listed companies, use of IFRS Standards
('Designated IFRS'), Japan's Modified International Standards (JMIS) and US GAAP
is also permitted.
 JMIS are the new set of accounting standards inaugurated by ASBJ in 2015 and
developed based on the endorsement process of accounting standards and
interpretations issued by the International Accounting Standards Board (IASB). With
the introduction of JMIS, there are four accounting frameworks that the listed
companies in Japan may use, but the voluntary application of IFRS Standards is
continuously expanding.

5. IFRS adoption in Japan
• Since 2010, companies that meet certain criteria have been permitted to voluntarily apply
IFRS Standards for consolidated financial statements in Japan.
• In 2013, the FSA revised its Cabinet Office Ordinances and eliminated certain requirements
in order to enhance further application of IFRS Standards in Japan.
Under the current regulation, a company may voluntarily use IFRS Standards if it meets the
following criteria:
 The company discloses, in its Annual Securities Report, information regarding specific efforts
to ensure that the consolidated financial statements will be prepared in accordance with
'Designated IFRS'; and
 The company allocates executives or employees with ample knowledge about 'Designated
IFRS', and puts in place a structure to ensure that the consolidated financial statements will be
prepared properly in accordance with Designated IFRS.
'Designated IFRS' is a set of IFRS Standards that have been designated by the Commissioner of
the FSA. Each IFRS standard is made effective through the formal process of endorsement.

6. Japanese GAAP
 Japanese generally accepted accounting principles (GAAP) are one of the four sets of
accounting standards listed companies in Japan can currently choose to use to file their
consolidated financial statements. The other three sets of accounting standards are
Designated IFRS, U.S. GAAP, and Japan’s Modified International Standards (JMIS).
 The ASBJ develops Accounting Standards in accordance with the “Rules on the Due Process
for the Development of Japanese GAAP and Japan’s Modified International Standards”
(hereinafter referred to as the “Due Process Rules”) set out by the Financial Accounting
Standards Foundation (FASF).

7. Standards Issued by the ASBJ
The types of Accounting Standards issued by the ASBJ after following the Due Process Rules
can be classified as follows:
Accounting Standards Basic rules underlying the accounting and disclosures
Implementation
Guidance
Interpretations of Accounting Standards and practical guidance
when applying Accounting Standards
Practical Solutions Tentative treatment for areas where Accounting Standards do
not exist and practical treatment for areas where there is urgent
need for guidance

8. Japan’s Modified International Standards (JMIS)
Accounting Standards Comprising IFRSs and the ASBJ Modifications are one of the four
sets of accounting standards listed companies in Japan can currently choose to use to file
their consolidated financial statements. JMIS comprise IFRSs as issued by the IASB and
ASBJ Modification Standards.
Currently, there are two Modification Standards:
 ASBJ Modification Standard No.1 “Accounting for Goodwill”
 ASBJ Modification Standard No.2 “Accounting for Other Comprehensive Income”

9. Thank You