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Major Firms Say More Time Needed to Implement Global Accounting Standard

June 20, 2011 (Knight Ridder/Tribune Business News) Opposition from manufacturers that support the foundation of the nation's economy was a major factor in the Financial Services Agency's move to postpone the introduction of the International Financial Reporting Standards.

Resistance to adopting the IFRS is strong because countries have long used their own standards for accounting, a yardstick to gauge corporate profits and asset position.

However, need for the IFRS has risen steadily in line with the globalization of corporate activities. The FSA, therefore, needs to present as soon as possible a concrete policy for a shift to the IFRS.

The FSA and the Financial Accounting Standards Foundation, a private sector organization tasked with drawing up accounting standards, initially considered three years to be enough time for companies to change their accounting system to the IFRS. It therefore believed it would be possible to make it mandatory for all listed companies to adopt the IFRS by 2015 or 2016, if they decided to introduce the new accounting system in 2012.

The FSA and the foundation have been pushing the compulsory introduction, as a delay in introducing the IFRS could lower the confidence of Japanese companies in the global market. They thought Japanese companies could be regarded as inadequately disclosing information at a time when there has been an increase in the number of countries that have adopted the IFRS.

Listed companies were allowed to voluntarily introduce the IFRS for consolidated accounts from the period ending March 2010 in Japan. Since then, an increasing number of companies, such as Sumitomo Corp. and megabanks, have started introducing the IFRS.

Meanwhile, it is difficult to say whether thorough discussions on the matter have been carried out in the nation, as there is a deeply rooted resistance among manufacturing companies.

Japanese accounting practices stress how a company was able to earn profits in a single fiscal year.

Meanwhile, the IFRS takes into account land and facilities owned by companies, future profits from valuable papers, the estimated values of such assets, and future pension payments.

Companies are required to carry out more efficient operations in consideration of the profitability of their assets.

In particular, manufacturing companies are expected to be significantly affected by a change in the accounting system, as they have many assets--including factories and facilities--which will inflate firms' accounting workloads.

In May, 22 companies and organizations, including Mitsubishi Electric Corp., Nippon Steel Corp. and Toyota Motor Corp., presented a written request to the head of the FSA, seeking a sufficient period of preparation for the introduction.

"Many companies started taking measures with no careful deliberation targeting the planned period to apply the system in 2015, which has gradually become a significant burden for the firms," the written request said.

The introduction of the IFRS has been discussed as a move to standardize accounting in light of the globalization of economic activities.

However, the United States, which is to decide whether or not to use the system by the end of this year, is becoming increasingly cautious about its introduction. Some countries, including India, also maintain their own independent accounting systems.

Meanwhile, the IFRS continues to be revised or reviewed.

There is a lot of feedback inside the FSA that says Japan should swiftly introduce the IFRS to increase its influence at the international level to avoid unfavorable revisions for Japanese companies.

Many discussion points still remain over a conversion to the IFRS, a standard that significantly changes the focus of accounting. The FSA must decide if the accounting system is to be applied to firms including unlisted companies. It also needs to discuss whether to apply the IFRS to nonconsolidated financial settlements as well.

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Copyright (c) 2011, The Yomiuri Shimbun

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