IFRS / U.S. GAAP / New Accounting Standards
IFRS & U.S. GAAP Advisory Services

J-GAAP has been developed by broadly incorporating concepts from IFRS and U.S. GAAP in order to achieve convergence with international accounting standards. As a result, a sound understanding of IFRS and U.S. GAAP may also be required in interpreting and applying J-GAAP. A key source of complexity in applying accounting standards lies in the concept of estimates embedded in many accounting standards. Estimates used in applying accounting standards must be reasonable, consistent with past performance and the economic conditions surrounding the company, and supported by objective data to the greatest extent possible in order to be persuasive. Many areas of accounting treatment are affected by accounting estimates, including impairment of goodwill, long-lived assets, and investments in subsidiaries and associates; changes in depreciation methods and useful lives; and deferred tax accounting.

Overview of key services

• Identification of transactions involving complex accounting treatments — including analysis of the key issues arising from those transactions based on the requirements of the applicable accounting standards
• Collection and analysis of data required for the application of accounting standards
• Preparation of objective supporting documentation for estimates used in applying accounting standards
• Support for responding to audit firms

Financial statement conversion refers to the process of restating financial statements prepared under one set of accounting standards into financial statements prepared under another. In addition to the preparation of IFRS financial statements for voluntary IFRS adoption in Japan and financial statements under U.S. GAAP for listings in the U.S. market, financial statement conversion may also be required in cases such as the following.

• U.S. GAAP conversion in connection with a business combination with a U.S. company or an acquisition by a U.S. company
• IFRS conversion in connection with a business combination with an IFRS-reporting company, such as a European or Asian company, or an acquisition by an IFRS-reporting company
• U.S. GAAP conversion of carve-out financial statements in connection with the sale of part of a business to a U.S.-listed company
• IFRS conversion for listings on the Hong Kong or Singapore stock exchange

Typically, financial statements and note disclosures for several prior years under IFRS or U.S. GAAP must be prepared within a short period of time. This makes it essential to carry out the conversion process efficiently within that limited timeframe, while also establishing an ongoing conversion process to keep the additional workload in subsequent periods to an absolute minimum.

Overview of key services

• Analysis of key IFRS and U.S. GAAP conversion issues and differences from current accounting treatments
• Assessment, for each key conversion issue, of the requirements under the applicable accounting standards, including evaluation of the current state of compliance and identification of what is needed to achieve compliance
• Evaluation of specific conversion approaches
• Preparation of reclassification entries for conversion purposes
• Preparation of conversion worksheets and collection and preparation of note disclosures
• Preparation of financial statements in English
• Support for responding to audit firms

For transactions and other events of the same nature conducted under the same circumstances, the accounting policies adopted by the parent and its subsidiaries are, in principle, required to be aligned. Accordingly, it is necessary to develop manuals that set out the accounting policies to be applied in preparing consolidated financial statements, as well as detailed guidance on how those policies and accounting standards should be applied in practice, and to roll them out across the group for implementation.
In addition, in Japan, overseas subsidiaries and associates are permitted to apply IFRS or U.S. GAAP instead of J-GAAP. As a result, for overseas subsidiaries and associates outside the United States, it may be necessary to develop and implement manuals under IFRS.

Overview of key services

• Review of the accounting policies adopted by the parent and its subsidiaries, as well as the current state of accounting manuals and related documentation
• Review of the current state of manuals and related documentation for accounting areas requiring estimates and judgment
• Support for the development of manuals and related documentation reflecting specific estimation and judgment criteria

Even where IFRS has not been adopted voluntarily, overseas subsidiaries and associates outside the United States often prepare financial statements under IFRS for consolidated financial reporting purposes. As a result, an understanding of IFRS is often required in order to interpret those financial statements or make any necessary adjustments. In response to our clients’ needs, we provide end-to-end support for IFRS and other accounting-related training, from program design and material development to delivery by experienced instructors.

Overview of key services

• Training on key IFRS concepts for management, including how to read and interpret IFRS financial statements
• Delivery of IFRS training programs covering the major IFRS topics, conducted over multiple sessions
• Delivery of IFRS training based on disclosure examples from companies that have voluntarily adopted IFRS
• Group training for the accounting teams of consolidated subsidiaries
• Practical training on the preparation of consolidated financial statements, including one- to three-day case studies

We provide support for the implementation of IFRS for listed companies adopting IFRS voluntarily, as well as for companies pursuing an IPO under IFRS. In addition to accounting matters, we also support, as needed, business and systems changes, the execution of transformation initiatives, internal control responses, and the development of management control and management accounting frameworks associated with IFRS implementation.

Implementation steps

(Phase 1)Impact assessment and evaluation

We assess and analyze the impact of IFRS adoption on accounting areas. We also evaluate its impact on business processes and systems, organizational structures, and management frameworks, and support decision-making on the overall approach to IFRS adoption and the scale of transformation required. In addition, we develop a high-level roadmap for the subsequent phases.

(Phase 2)Planning and build-out

Based on the IFRS adoption approach and high-level roadmap determined in the previous phase, we conduct additional detailed assessments as needed and develop a formal IFRS implementation plan. In line with that plan, we support the definition of IFRS accounting policies and methods for preparing IFRS conversion entries, the development of manuals, the assessment of first-time adoption issues, and the build-out of the business processes and systems required for IFRS financial reporting and disclosures. We also help put in place the necessary organizational structures and internal control frameworks. Where management frameworks are to be enhanced as part of IFRS adoption, we also support the design and implementation of the relevant policies and new management processes. In addition, we carry out specific initiatives as needed, such as aligning reporting dates across group companies and accelerating the financial closing process.

(Phase 3)Implementation and operation

Using the business processes and systems established in Phase 2, we prepare the required IFRS financial statements. As needed, we also address a range of issues arising during the parallel reporting period, support continuous improvements in business processes and systems, and assist with preparations for IFRS-based management frameworks, including the development of management plans and budgets in connection with IFRS adoption.

(Phase 4)Embedding and continuous improvement

After IFRS-based disclosures begin, we support the embedding of the new processes in day-to-day operations and their ongoing improvement.

Overview of key services

• IFRS accounting advisory services, including impact assessments, accounting policy development, definition of methods for preparing IFRS conversion entries, and manual development
• Support for the development and implementation of business processes and systems
• Support for aligning reporting dates and shortening the financial closing timetable
• Support for internal control frameworks and the development of management control and management accounting systems
• Project management office (PMO) support