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IFRS Consulting Services

Pacific Business Consulting, Inc. introduces how enterprises can adopt IFRS by using Microsoft Dynamics and PBC can provide IFRS consultation services.

What is IFRS ?

International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB), which are used in more than 100 countries in the world. IFRS consist of basic framework, 38 financial standards and 27 interpretations.
In August 2007, the Accounting Standards Board of Japan (ASBJ) and the IASB jointly announced an agreement to accelerate convergence between Japanese GAAP and IFRS by the end of June 2011(“Tokyo Agreement”). Voluntary IFRS adoption is now allowed in Japan. In 2012, a decision will be made and it is highly probable that compulsory adoption of IFRS will start from 2015 or 2016.

Official Name International Financial Reporting Standards (IFRS)
Standard-setter International Accounting Standards Board (IASB)
Interpretations Committee International Financial Reporting Interpretations Committee (IFRIC)

Used in more than100 countries

Basic vision of framework

Objective of financial statements
（To provide beneficial information for investors’ decision making.）
Assumptions
（Accrual basis and Going concern）
Quality features of financial statements
（Fitness for purpose, reliability and comparability）
Components of financial statements
（Essences to measure financial position: Assets, Liabilities and Equity）
（Essences to measure operating result: profit and cost）
Recognition for components of financial statements
（Probable that future economic benefit will flow in/out and companies have measurable cost）
Measurement for components of financial statements
（Acquisition cost, Present value and Feasible value）
Concept of capital and capital maintenance
38 standards
IASB (9 items)

IFRS 1　First-time Adoption of International Financial Reporting Standards
・
IFRS 9　Financial instruments: classification and measurement

IASC (29 items）

IAS 1　Presentation of Financial Statements
IAS 2　Inventories
・
・
IAS 41　Agriculture

27 interpretations
IFRIC (16 items）

IFRIC 1　Changes in Existing Decommissioning, Restoration and Similar Liabilities
・
IFRIC19 Extinguishing Financial Liabilities with Equity Instruments

SIC (15 items）

SIC7　Introduction of Euro
SIC10　Government Assistance
・
・
SIC32　Intangible Assets

IASC＝International Accounting Standards Committee
SIC＝Standing Interpretations Committee

Features and benefits of IFRS

The principal objective of IFRS is to create a single set of a global accounting standard that is able to produce a more transparent, globally comparable, understandable and acceptable financial reporting for general purpose financial statement. IFRS include three features below.
IFRS adoption enables investors to make more efficient investment decisions. On the other hand, companies can have diversified financing method and improved research on M&A.

Features and benefits of IFRS

Perspective of IFRS

J-GAAP is rules-based and has detailed numerical criteria to deal with all scenarios.
On the other hand, IFRS are more principles-based. Companies need to decide appropriate account processing based on the principles. 		IFRS put emphasis on Asset and Liability.
Comprehensive Income is defined as the change in a firm's net assets (assets minus liabilities) from non-owner sources. This is called Asset-Liability approach.
On the other hand, J-GAAP is based on revenues-expenses perspectives. Current income is highly valued in business valuation.
１）Principles-based
２）Asset-liability approach

IFRS

３）Fair value
４）Investor’s view

IFRS state that companies should introduce measurement of assets and liabilities at fair value and balance sheet should report economic reality of companies. (e.g. consolidates 100% of the subsidiary‘s income )
J-GAAP have valued income but measurement will be changed from acquisition cost basis to fair value basis with introduction of Asset-Liability approach. 		IFRS put priority on providing useful information for investors, by evaluating companies externally.
Due to the Principles-based standards, executive managers will have more accountability.
  • Elaboration of Cash flow statement
  • Consolidated accounting
  • Capability of comparison
  • International corporate comparison
  • Consolidation system for both institution and management
  • Firm performance indicator (Comprehensive income)
  • Detailed notes in addition to normal financial statement

Scope of the effect, major process and implementation approach

Diagrams below are matrices of examination items for IFRS. In the IFRS adoption project, account processing policy, operation, IT and organization will be the main items for consideration.

Scope of the effect, major process and implementation approach

Not only from the institutional point of view, you need to take comprehensive approach to review the systems.

IFRS target companies

IFRS are not applicable to all companies. Basically they are the standards for listed companies. In order to adopt IFRS, companies need to organize an internal system to control them.
In Japan, IFRS will be applied only to consolidated financial statements and individual financial statements should be prepared with J-GAAP. However, enterprises which do not prepare consolidated financial statements will have to disclose IFRS individual financial statements.

IFRS target companies

  • Listed enterprises: enterprises whose stocks are listed on the stock market.
  • Large enterprises: companies with capital of 500 million yen or total liabilities of 20 billion yen.
  • According to “Guidelines on the Accounting of Small and Medium Enterprises”, companies below are exempt from IFRS adoption.
    • Subsidiaries and related companies of enterprises applicable to Financial Instruments and Exchange Act.
    • Companies owning audit corporation and their subsidiaries.
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