IFRS JGAAP COMPARED PDF

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Comparison of standards...

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JGAAP-IFRS comparison English version 3.0 [equivalent of Japanese version 4.0]

Contents Contents ............................................................................ 2 Introduc tion ....................................................................... 3 Pres entation of F inanc ial Statements , Ac c ounting Polic ies , Changes in Ac c ounting E s timates and E rrors, As s ets Held for Sale and Dis c ontinued Operations ......................................... 4 Consolidation ...................................................................... 7 Equity Method ................................................................... 14 J oin t Ve n tu re s/ Arrangements ............................................. 17 Bus ines s Combinations ....................................................... 18 Inventory .......................................................................... 21 Intangible As s ets and Res earc h and Development Cos ts ......... 23 Fixe d Asse ts ..................................................................... 26 Inves tment Property .......................................................... 29 Impairment of as s ets .......................................................... 31 Le as e s .............................................................................. 33 F inanc ial Ins truments ......................................................... 36 F oreign Currenc y ............................................................... 56 Inc ome T ax ........................................................................ 60 Provis ions and Conting enci es .............................................. 64 Construction Contracts ...................................................... 67 Reven ue Recogniti on .......................................................... 68 Sh are-Bas ed Paymen ts ....................................................... 71 E mploye e Be n e fits, e xc lu din g Share -Based Payme nts ............. 74 App endi x 1 - The Adopti on of IFRS i n Japan .......................... 78 App endi x 2 - IF RS Relate d Resou rces ................................... 79

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Introduction Today, in a move towards improving the comparability of financial statements and to reducing the costs of raising capital in international markets and so on, countries around the world are converging their national accounting standards with International Financial Reporting Standards (“IFRS”) or are adopting IFRS itself. In Japan too, The Accounting Standards Board of Japan (“ASBJ”) and the International Accounting Standards Board (“IASB”) concluded the “Tokyo Agreement” in August 2007 and agreed to the acceleration of convergence. Specifically, it outlined that the significant differences between Japanese generally accepted accounting principles (“JGAAP”) and IFRS would be eliminated by the end of 2008 and that the remaining differences would be eliminated by 30 June 2011. Through the convergence project consistent with that agreement, the differences between IFRS and JGAAP are eliminated considerably. Furthermore, in February 2009 the Financial Services Agency of Japan issued a proposed road map for adopting IFRS, and serious consideration of adoption of IFRS in Japan commenced. There are still a number of differences between JGAAP and IFRS because convergence based on the “Tokyo Agreement” is ongoing and as revisions continue to be made and new standards issued in IFRS. In this booklet, we outline the differences between the two sets of standards by accounting topic. It is not possible to describe comprehensively every difference which could arise in accounting for all transactions, and we have focused as much as possible on those differences which are considered to be most common in current practice. We have taken care in preparing this booklet. However as the information is summarised, this booklet is intended to be used as general guidance only and is not intended to be used as detailed advice or in place of professional judgment. Please refer to the original texts for the detailed guidance. Also, we recommend that you consult with specialists about particular transactions. Ernst & Young ShinNihon LLC, Ernst & Young Global and any member firm thereof, will not be responsible should any damages or losses arise as a result of the use of this booklet. The information contained herein is based on accounting standards effective as at 30 June 2011.

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Presentation of Financial Statements, Accounting Policies, Changes in Accounting Estimates and Errors, Assets Held for Sale and Discontinued Operations ► Significant Differences Accounting periods required to be presented

Components of financial statements

JGAAP (Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements: Presentation) The prior period and the current period consolidated financial statements must be presented comparatively.

IFRS (IAS1.38, 39) Comparative information, at a minimum for one previous period, shall be disclosed for all amounts reported in the financial statements.

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements: Presentation) The following statements (※1)must be prepared: ► Consolidated Balance Sheet ► Statement of Consolidated Comprehensive Income (a single statement approach) or an Income Statement and a Statement of Other Comprehensive Income (a two statement approach) (※2) ► Consolidated Statement of Changes in Shareholders’ Equity ► Consolidated Cash Flow Statements ► Consolidated Supplementary Information ※1 Even if an entity applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassifies items in its financial statements, it does not need to prepare an opening balance sheet for the earliest period presented. ※2 Both a single statement approach and a separate (two) statement approach are permitted.

(IAS1.10) The following statements must be prepared ※1:,2

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Statement of Financial Position Statement of Comprehensive Income (a single statement approach) ※4 or an Income Statement and a Statement of Other Comprehensive Income (a two statement approach) ※3 ► Statement of Changes in Equity ► Statement of Cash Flows ► Accounting Policies and Other Explanatory Information ► ►

※1 Titles

other than those listed above may be used for these statements. ※2 If an entity applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassif ies items in its financial statements, it must prepare an opening balance sheet for the earliest period presented in addition to the above. ※3 Both a single statement approach and a separate (two) statement approach are permitted. (Revised standard: IAS1.10A(b)) ※4 A statement of profit or loss and other comprehensive income (a single statement)

Presentation of extraordinary gains and losses

Other comprehensive income not reclassified to profit or loss

JGAAP (Regulation for Terminology, Forms and Preparation of Financial Statements 62,63) Items related to extraordinary gains and losses are presented by category in accordance with their nature.

IFRS (IAS1.87) No profit or loss items are allowed to be presented as extraordinary items in the statement of comprehensive income, the income statement (when presented) or in the notes.

In principle, it is not expected that there will be items of comprehensive income that, as in IFRS, will not be reclassified to profit and loss subsequently.

( IAS 1.95,96) Certain items are recognised in other comprehensive income and are not reclassified to profit or loss in subsequent periods. (Revised standard IAS 1.82A) Within other comprehensive income items which will not be reclassified subsequently to profit or loss; and items which will be reclassified subsequently to profit or loss when specific conditions are met shall be separately presented.

Presentation of the total of profit/loss and comprehensive income attributable to minority interests for the reporting period ( comprehensive income) Departure from a requirement of a standard to give a fairer presentation

Non-current assets classified as held for sale (and disposal groups)

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements 65.3 69 7.2) Profit (or loss) attributable to minority interests is presented in the consolidated profit and loss statement. The amount of comprehensive income attributable to owners of the parent and to minority interests will be disclosed as allocations in the consolidated financial statements. No such rule exists.

(IAS1.83) (revised standard IAS 1.81B) Profit (or loss) and total comprehensive income for the period attributable to non-controlling interests shall be presented.

There are no specific rules. However, under the Standard for the Impairment of Fixed Assets, note 2, as examples of indicators of impairment, disposal of a business operation and restructurings, disposal earlier than initially planned, changes in purpose of use etc. are given.

(IFRS5.6,15) If the carrying value of assets will be recovered principally through a sale transaction rather than through continuing use, the asset (or disposal group) shall be classified as held for sale and shall be measured at the lower of carrying amount and fair value less costs to sell.

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(IAS1.19) In the extremely rare circumstances in which compliance with a requirement in an IFRS would be so misleading that it would conflict with or be contrary to the Framework for the Preparation and Presentation of Financial Statements, it is necessary to depart from that requirement (the ‘true and fair override’).

Depreciation of non-current assets (or disposal groups) classified as held for sale Presentation of non-current assets classified as held for sale

JGAAP There are no specific rules. However, impaired assets must be depreciated from the book value from which the amount of impairment loss is already deducted (Standard for the Impairment of Fixed Assets 3.1).

IFRS (IFRS5.25) Non-current assets (or disposal groups) classified as held for sale are not depreciated.

There are no specific rules.

(IFRS 5.38) Non-current assets and liabilities classified as held for sale (or disposal groups), and any cumulative income or expense recognised in other comprehensive income or loss relating to a non-current asset (or disposal group) classified as held for sale, shall be separately presented within assets, liabilities and equity in the statement of financial position and within the statement of comprehensive income, respectively. ※The major classes of items within assets and liabilities described above, except for certain items, shall be disclosed in the statement of financial position or notes (IFRS 5.38,39)

Presentation of discontinued operations

There are no specific rules.

(IFRS5.30,33) The following total amounts must be separated as a single item from the amounts arising from continuing operations in the statement of comprehensive income (profit and loss statement): ► the post-tax profit or loss of discontinued operations; ► the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on disposal of the assets (or disposal group). ※ An analysis of post–tax profit and loss except for certain items shall be disclosed in the statement of comprehensive income ( or income statement ) or notes.

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Consolidation ►

Significant differences

Scope of consolidation

JGAAP (Accounting Standard for Consolidated Financial Statements 6, 7, 13) The scope of consolidation is based on the concept of control. A parent company controls another company when it has control over the body which makes the financial, operating and business decisions (the decision making body) of that other company. There are no specific rules about the effect of potential voting power or whether the decision maker is a principal or an agent when judging the existence of control. On the other hand, similar to ‘de facto control’ in IFRS10, even if less than half of the voting rights are held, there are rules that require an entity to make the judgment as to whether control exists by also including the voting rights held by closely related parties or parties with the same intention after considering the structure of the Boards of Directors, the financial position, and the existence of any contracts which control policy making ability etc. of such parties.

IFRS (IAS27.4,12,13,14) The scope of consolidation is based on the concept of control. Control exists when the parent entity is able to govern the financial and operating policies of an entity so as to obtain benefits from that entity’s activities. When assessing whether an entity has control over another entity, potentially exercisable or convertible instruments with voting rights are considered. (New standard IFRS10.7) The scope of consolidation is based on the concept of control. An investor controls an investee if and only if the investor has all the following: (a) power over the investee; (b) exposure, or rights, to variable returns from its involvement with the investee; and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. (New standard IFRS10.B, B47) When assessing control, an investor considers its potential voting rights as well as potential voting rights held by other parties, to determine whether it has power. (New standard IFRS10.B41, B42) It is possible, that an investor with less than a majority of the voting rights has rights that are sufficient to give it power, the so-called ‘de facto control’. (New standard IFRS10.18, B58) When an investor with decision-making rights (a decision maker) assesses whether it controls an investee, it shall determine whether it is a principal or an agent.

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Scope of consolidation (exception)

Special purpose entities (SPEs) and structured entities (SE)

Uniform accounting policies of consolidated subsidiaries

JGAAP (Accounting Standard for Consolidated Financial Statements 14) The following entities are excluded from the scope of consolidation: ► subsidiaries where control is temporary; ► subsidiaries which, if consolidated, would give rise to the risk of substantially misleading the judgment of interested parties

IFRS (IAS27.4, 12) All entities, which are in substance controlled must be consolidated, there are no exceptions similar to the JGAAP exceptions.

(Treatment of the revision of the scope of consolidation of subsidiaries and affiliated companies) (Treatment in practice regarding the control and the influence standards in relation to investment vehicles) Certain SPEs which meet certain conditions are presumed not to meet the definition of subsidiaries. The scope of consolidation of investment vehicles is in principle judged based on the existence of control over operations.

(SIC12.8) SPEs shall be consolidated when the substance of the relationship between an entity and the SPE indicates that the SPE is controlled by the entity.

(Accounting Standard for Consolidated Financial Statements 17) (Practical Interim Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements) Accounting policies and procedures for like transactions in similar circumstances applied by the parent and the subsidiary, in principle, shall be unified. However, if the financial statements of the foreign subsidiary are prepared in accordance with IFRS or USGAAP, as an interim measure, these can be used after adjustment of five specific items.

(IAS27.24, 25) (New standard IFRS10.19, B87) Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated statements.

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(New standard IFRS10 Appendix A, IFRS9.3.2.1) In accordance with IFRS10, all subsidiaries must be consolidated. There are no exemptions as in JGAAP.

(New standard IFRS10) As set out in IFRS10.7, structured entities (SEs) that an investor controls must also be consolidated.

Non-cotermino us reporting periods

Presentation of profit or loss attributable to non-controlling interests (minority interests)

JGAAP (Accounting Standard for Consolidated Financial Statements Note 4) When the difference between the end of the reporting period of the subsidiary and that of the parent is less than three months, the financial statements of the subsidiary can be used as they are for consolidation purposes. In that case, adjustments shall be made for the effects of significant intragroup transactions.

IFRS (IAS27.22, 23, 41(c)) (New standard IFRS 10.B92, B93) The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall be prepared as of the same date. When the end of the reporting period of the parent is different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial statements as of the same date as the financial statements of the parent unless it is impracticable to do so (after making every reasonable effort). In the case that it is impracticable to align the reporting period ends, , adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the parent’s financial statements (the gap period is limited to no more than three months).

(Accounting Standard for Consolidated Financial Statements 39) In the Consolidated Profit and Loss (two statement approach) and the Consolidated Profit and Loss and Comprehensive Income (single statement approach), after deducting or adding income tax to profit before incomes taxes and similar, the profit before minority interests is presented, then minority interests are deducted or added to present the profit and loss for the period.

(IAS1.82, 83) (Revised IAS1.81B) Profit or loss and total comprehensive income for the period are presented including non-controlling interests (minority interests), and amounts attributable to non-controlling interests and to the parent company are disclosed as allocations in the financial statements.

In the two statement approach, Consolidated comprehensive Income, and in the single statement approach, Consolidated Profit and Loss and Comprehensive Income, as part of presenting comprehensive income, both amounts attributed to the owners of the parent and amounts attributed to minority interests are shown.

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Allocation of losses of a subsidiary to non-controlling interests

Loss of control of a subsidiary

JGAAP (Accounting Standard for Consolidated Financial Statements 27) If the proportionate losses of subsidiaries relating to the minority interests’ share exceed the amount that the minority interests are obliged to bear, any such excess amount is charged to the parent company.

IFRS (IAS27.28) (New standard IFRS10, B94) Even when non-controlling interests result in a deficit balance, total comprehensive income is attributed to both non-controlling interests and the parent company.

(Accounting Standard for Consolidated Financial Statements 29 ) (Accounting Standard for Business Separations 38, 48(1)①) (Application Guidance on Accounting Standards for Business Combinations and Business Separations 275, 276, 288(2)) As t...