United States

IFRS Adoption in Japan will Affect US Subsidiaries

Feb 28, 2017
From the IFRS Institute

IFRS Perspectives: Update on IFRS issues in the US

IFRS is gaining popularity in Japan, and the use of US GAAP is declining. That means that US subsidiaries of Japanese groups may need to convert to IFRS for consolidation purposes. 

Japanese companies with overseas subsidiaries can choose from US GAAP, IFRS as issued by the IASB, Japan’s Modified International Standards (endorsed version of IFRS), and Japanese GAAP (JGAAP). Historically, Japanese Foreign Private Issuers (FPIs) have used US GAAP or JGAAP with a reconciliation to US GAAP. However, over the years IFRS has slowly but surely gained momentum in Japan.

The Financial Services Agency (FSA), the Japanese financial regulatory body, has allowed Japan’s listed companies to use IFRS since 2010. In 2013, the FSA eased regulations for applying IFRS. As a result, the number of companies that either have applied or have decided to apply IFRS has increased significantly. As of February 2017, there are 133 such companies representing 4% of listed companies, but approximately 25% of the listed market capitalization in Japan. We expect this trend will continue in the coming years.

In contrast, the number of Japanese companies applying US GAAP has been decreasing.

This trend has direct consequences for US subsidiaries of Japanese groups. JGAAP allows companies to consolidate their subsidiaries using their financial statements prepared under US GAAP or IFRS, with a few adjustments. Therefore, US subsidiaries of Japanese groups have often been reporting under US GAAP whether the group was a JGAAP or US GAAP preparer. There is no such permission under IFRS. Therefore, as Japanese groups adopt IFRS, their US subsidiaries will also need to convert to IFRS for consolidation purposes.


*Sources for number of listed companies in Japan applying either US GAAP or IFRS: IFRS Application Around the World -Jurisdictional Profile: Japan, IASBVoluntary Application of IFRS (Current and scheduled); Tokyo Stock ExchangeIFRS Adoption Report; Financial Services Agency.


For more information and questions related to IFRS please contact one of our Accounting Advisory Services professionals.

East region

Erik Lange
Partner, Accounting Advisory Services
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: +1 212-872-6654
E: elange@kpmg.com

Ingo Zielhoff
Managing Director, Accounting Advisory Services
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: +1 212-872-4423
E: ingozielhoff@kpmg.com

Reza Van Roosmalen
Managing Director, Accounting Advisory Services
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: +1 212-954-6996
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West region

Jason Anglin
Principal, Accounting Advisory Services
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: +1 415-963-7606
E: janglin@kpmg.com

Southeast Region

Jack Ingram
Partner, Accounting Advisory Services
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: +1 404-221-2398
E: jtingram@kpmg.com

Midwest region

Marybeth Shamrock
Partner, Accounting Advisory Services
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: +1 216-875-8158
E: mshamrock@kpmg.com

South region

Michael Nesta
Partner, Accounting Advisory Services
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: +1 214-840-2730
E: mnesta@kpmg.com

The descriptive and summary statements in this newsletter are not intended to be a substitute for the potential requirements of the proposed standard or any other potential or applicable requirements of the accounting literature or SEC regulations. Companies applying U.S. GAAP or filing with the SEC should apply the texts of the relevant laws, regulations, and accounting requirements, consider their particular circumstances, and consult their accounting and legal advisors.