Similarities and Differences - PwC

jp/ifrs

Similarities and Differences

A comparison of IFRS and JP GAAP

2013

March 2013

Contents

Preface .......................................................................................................... 2 How to use this publication..........................................................................3 First-time adoption ......................................................................................5 Revenue recognition ....................................................................................9 Expense recognitionshare-based payments .......................................... 23 Expense recognitionemployee benefits ................................................. 29 Assetsnonfinancial assets ...................................................................... 39 Assetsfinancial assets .............................................................................61 Derivatives and hedge accounting ............................................................ 85 Liabilitiestaxes....................................................................................... 95 Liabilitiesother ..................................................................................... 101 Financial liabilities and equity .................................................................107 Consolidation ........................................................................................... 117 Business combinations.............................................................................133 Other accounting and reporting topics ....................................................139 Index ........................................................................................................ 151

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Similarities and Differences - A comparison of IFRS and JP GAAP 2013

Preface

Starting with the European Union's (EU) compulsory measure for listed companies within the EU to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), we are witnessing a growing trend towards adoption of IFRS. IFRS is rapidly advancing its position from a set of accounting standards used by investment markets in specific geographic areas such as the EU and Australia, to one now used commonly in more than 100 countries and territories around the world, and the trend will continue into the future.

The joint announcement (Communiqu?) of G20, Group of Twenty Finance Ministers and Central Bank Governors, held in February 2012 in Moscow, expressed a concern with the delays in the convergence of accounting standards and asked the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to finalize by the end of 2013 their work on key outstanding projects for achieving a single set of high-quality standards.

In Japan, based on the "Tokyo Agreement" between the Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) signed in August 2007, convergence between Accounting Principles Generally Accepted in Japan (JP GAAP) and IFRS is under progress. As a result, judgment in accordance with IFRS and conforming accounting treatment is increasingly incorporated into Japanese accounting standards with due consideration to the corporate environment and accounting practices in Japan.

For IFRS adoption in Japan, nine companies have already started to apply IFRS by March 2013, in response to the commencement of voluntary adoption of IFRS from March 2010. The number of companies that elect voluntary adoption of IFRS is highly likely to expand in light of increasing cross-border activities and strategies comprising the mid- and long-term plans of Japanese companies.

In addition, from June 2011, deliberation on IFRS adoption has been re-opened at the Business Accounting Council of the Financial Services Agency. Furthermore, The IFRS Foundation opened a new office in Tokyo. The Asia-Oceania liaison office is expected to serve as a regional hub to facilitate IASB's research and factual surveys. Hence Japan's approach to IFRS assumes an important role in helping both the global activities of Japanese companies as well as IFRS adoption in the Asia-Oceania region.

In light of this trend, IFRS is expected to become more immediately relevant not only to practitioners and experts in Japanese accounting and finance but also to the management and investors of Japanese companies.

Under these circumstances, this publication focuses on and explains the major differences among IFRS and JP GAAP. This publication does not address all the differences between these standards. However it explains the differences we consider specifically important. We hope that this publication will be useful in identifying the key differences between the two standards and help you gain a broad understanding of IFRS.

Hiroyuki Suzuki Territory Senior Partner PwC Japan

Note: PwC Japan refers to the member firms in Japan of the PwC global network and their affiliates. Each member firm conducts its activities as an independent legal entity for which the PwC Japan Territory Senior Partner plays a coordinating role.

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How to use this publication

In each chapter, the first section provides a summary of the similarities and differences between IFRS and JP GAAP. It refers to the subsequent section of the document where key differences are highlighted and explained in more detail. In addition, the last section on Recent Developments provides the overview of the new standards and exposure drafts.

No summary publication can do justice to the many differences of detail that exist among IFRS and JP GAAP. This publication focuses on the accounting most commonly found in practice. When using this publication, readers should consult all the relevant accounting standards and, where applicable, their national law. Listed companies should also follow relevant securities regulations ? for example, requirements regulated by the Financial Services Agency in Japan or the US SEC and local stock exchange listing rules.

This publication takes account of authoritative pronouncements and other developments under IFRS and JP GAAP up to December 2012. However, it is not all encompassing. We have noted certain recent developments or exposure drafts within the detailed text; however, not all recent developments or exposure drafts have been included.

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Similarities and Differences - A comparison of IFRS and JP GAAP 2013

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IFRS first-time adoption

Similarities and Differences - A comparison of IFRS and JP GAAP 2013

IFRS first-time adoption

IFRS 1, First-Time Adoption of International Financial Reporting Standards, is the standard that is applied during preparation of a company's first IFRS-based financial statements. IFRS 1 was created to help companies transition to IFRS and provides practical accommodations intended to make first-time adoption cost-effective. It also provides application guidance for addressing difficult conversion topics.

What does IFRS 1 require?

The key principle of IFRS 1 is full retrospective application of all IFRS standards that are effective as of the reporting date of the first IFRS financial statements. IFRS 1 requires companies to:

Identify the first IFRS financial statements

Prepare an opening statement of financial position at the date of transition to IFRS

Select accounting policies that comply with IFRS and apply those policies retrospectively to all of the periods presented in the first IFRS financial statements

Consider whether to apply any of the optional exemptions from retrospective application

Apply the mandatory exceptions from retrospective application

Make extensive disclosures to explain the transition to IFRS

IFRS 1 is regularly updated to address first-time adoption issues. There are currently 18 long-term optional exemptions (IFRS 1.18, Appendix C and Appendix D) to ease the burden of retrospective application as of December 31, 2012. These exemptions are available to all first-time adopters, regardless of their date of transition. Additionally, the standard provides for short-term exemptions (IFRS 1.18, Appendix E), which are temporarily available to preparers and often address transition issues related to new standards. There are currently three such short-term exemptions as of December 31, 2012. There are also certain mandatory exceptions (IFRS 1.14-17, Appendix B) for which retrospective application is not permitted.

As referenced above, the exemptions provide limited relief for first-time adopters, mainly in areas where the information needed to apply IFRS retrospectively might be particularly challenging to obtain. There are, however, no exemptions from the disclosure requirements of IFRS, and companies may experience challenges in collecting new information and data for retrospective footnote disclosures.

Many companies will need to make changes to existing accounting policies to comply with IFRS, including in key areas such as revenue recognition, inventory accounting, financial instruments and hedging, employee benefit plans, impairment testing, provisions, and stock-based compensation.

When to apply IFRS 1

Companies will apply IFRS 1 when they transition from their previous generally accepted accounting principles (GAAP) to IFRS and prepare their first IFRS financial statements. These are the first financial statements to contain an explicit and unreserved statement of compliance with IFRS.

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