On August 8, 2007, the Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) jointly announced an agreement to accelerate convergence between Japanese GAAP and International Financial Reporting Standards (IFRSs).
As part of the new "Tokyo Agreement," the two boards will seek to eliminate by 2008 major differences between Japanese GAAP and IFRSs, with the remaining differences being removed on or before mid-2011.
Commentary: The impact of Japan's accelerated shift towards IFRSs cannot be ignored. As measured by Gross Domestic Product (GDP), Japan's economy is the second-largest in the world among individual countries, trailing only the United States. Japan is also home to the world's second largest stock market (as measured by market capitalization), again trailing only the U.S.
Financial executives in companies having related entities that use Japanese GAAP should be aware that Japan's financial reporting standards will change significantly in the next few years and, once converged with IFRSs, will continue to change significantly for many years thereafter.
U.S. financial executives should be aware that direct convergence with U.S. GAAP has once again been rejected in favor of IFRSs by a major economic power. Japan's recent action highlights the increasingly isolated position of U.S. financial reporting standards and increases the incentives for the U.S. to converge U.S. GAAP with IFRSs, which would affect all U.S. companies, not just multi-nationals.
Read the IASB's Press Release here.
