The Impact of Voluntary IFRS Adoption on Japanese Public Companies

Purpose - The purpose of this paper is to contribute to international debate and enhance the current understanding of voluntary IFRS adoption in Japan and the practical issues related to the adoption. Furthermore, I also tried to explain the factors that had led public companies to adopt these international standards in Japan. Design/Methodology - As of March 31, 2014, the 45 Japanese companies had either implemented IFRS or had publicly announced their intention to do so. The 19 companies of them had prepared consolidated financial statements in accordance with JP GAAP and applied IFRS 1. Based on these IFRS 1 information, I performed the in-depth analysis to determine the reason why these companies decided to adopt IFRS. Findings - The 45 companies had significantly more foreign subsidiaries, compared to other public companies in Japan. In addition, the foreign stockholding ratio of these companies also were higher than other Japanese public companies. Furthermore, analysis of GAAP differences from 19 adopted companies found that the key differences for Japanese companies were “Optional exception of cumulative exchange differences at first-time adoption”, “Non- amortization of goodwill”, “Capitalization of research and development cost”, and “Depreciation method and useful year”. Implications - The result of study indicated that the voluntary adoption of IFRS in Japan would be likely to continue increasing at a substantial rate for the foreseeable future and Japan would ultimately be seen as a guiding forerunner among countries adopting pure IFRS.