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Japan’s Modified International Standards (JMIS) comprise IFRSs as issued by the IASB and two Modification Standard, that concerned with accounting for goodwill and accounting for other comprehensive income. Are these accounting issues most critical to Japanese companies?

R. S.: In general, Japanese listed companies can choose between three sets of accounting standards: Japanese GAAP; IFRS Standards as issued by the International Accounting Standards Board; and Japan’s Modified International Standards (JMIS), which consists of IFRS Standards and two modifications by the Accounting Standards Board of Japan (ASBJ), when preparing their consolidated financial statements.In addition, existing and former foreign private issuers from the US can use the US GAAP.

JMIS include so-called ‘deletion and modification’ to IFRS Standards in two areas of accounting relating to the non-amortisation of goodwill and so-called ‘non-recycling’, where reclassification adjustments (recycling) will not be made for items previously recognised in other comprehensive income. ASBJ made the modifications because IFRS Standards differ in these areas from the fundamental thinking on accounting standards generally accepted in Japan. ASBJ’s reasons can be found in their Basis for Conclusions of the ASBJ Modification Accounting Standards No.1 and No. 2

I would like to highlight that no company uses or plans to use JMIS to date, while more than 200 Japanese listed companies already use IFRS Standards and many more are in the process of moving to IFRS Standards.

Yoshiaki Amano’s recent studies  have confirmed that the liberal guidance of IAS 38 regarding R&D and goodwill are an important factors in deciding whether to switch to IFRS. Do you think the expansion of the intangible assets capitalization is a very promising way to develop IFRS?

R. S.: His studies analysed the inter-relationship between the intangible asset amount and the management decisions of the listed companies that decided to use IFRS Standards.  As a previous audit partner of one of the large audit firms in Japan, I had opportunities to listen to the senior management who led the accounting department of their companies explain why they decided to use IFRS Standards.  What I learnt, was that there are always multiple reasons for each company to make decisions about which accounting standards they will use in the future given a huge investment in various resources within and outside those companies, as their transition to IFRS Standards cannot be initiated by just one reason.

Having said that, accounting and disclosures for intangibles is becoming more important than before. Recently we have heard strong feedback from both companies and investors that more information relating to intangibles will make the financial information more useful. This is, however, an area in which differing views exist.

The IASB will consult on its future work plan during the first half of 2021 to seek public input on the strategic direction and balance of the IASB’s activities for the next five years; the criteria for assessing the priority of financial reporting issues that may be added to the IASB’s workplan; and financial reporting issues that should be given priority in the IASB’s workplan.  I am sure that discussions about the accounting and disclosures relating to the intangibles will be one of the items in our stakeholders’ wish list.  I look forward to seeing the stakeholders’ views on the accounting and disclosure issues of intangibles and their thoughts on how the IASB can resolve today’s challenges.