Around 200 multinational Japanese companies, representing over 30% of the Tokyo Stock Exchanges total market capitalisation, have chosen to adopt the full IFRS Standards, the standard setting body has revealed.

During a keynote speech in Tokyo, the chairman of the IFRS Hans Hoogervorst, delivered the results of an economic experiment IFRS conducted with the market in Japan.

In order to decide if IFRS standards should be adopted in the Japanese Market, it was left to the market to decide rather than the standards being imposed onto companies.

Explaining the rational, Hoogervorst said: “When companies are given free choice, do they stick with GAAP or US GAAP, or do they switch to international standards. And if they do switch, do they choose pure IFRS standards or a version of standards modified to meet local preferences?

“Unlike most jurisdictions, no Japanese company was forced to use a particular set of standards.”

In addition to this a further 50% of the Tokyo market cap could be IFRS-denominated as some big companies in Japan are also looking at adopting the IFRS standards.

The purpose of the experiment was two-fold: it provided a chance for Japan to move forward with implanting the standards in their businesses and to provide policymakers and academics around the world with information.

Results from the experiment showed that, given free choice, companies are prepared to voluntarily incur the cost of transition that come with moving to IFRS standards.

 Additionally amongst the companies that transitioned to the standards – 100% chose full IFRS rather than opting for a version modified to local preferences. 

The approach has also allowed larger international Japanese companies to apply IFRS without forcing all Japanese companies to switch. This provides relief to other jurisdictions who may have had concerns on challenges arising if all companies went for IFRS adoption.

Hoogervorst commented on the Japanese market and said: “As the world grapples with the challenges of increased nationalism and economic protectionism, it is great to see Japan’s continued commitment to an international approach.”

Possible reintroduction of amortisation of goodwill

In Japanese GAAP the amortisation of goodwill still exists. Hoogervorst said: “Many Japanese stakeholders like the conservatism of goodwill amortisation and it is one of the two IFRS modifications in Japanese Modified International Standards.”

IASB adopted the IFRS 3 Business Combinations in 2004 and abolished the amortisation of goodwill, instead focussing on the impairment-only approach.

The board has since begun discussing the issue of goodwill following Post-implementation Review of IFRS 3, where certain challenges arose.

Hoogervorst acknowledged these challenges, adding: “These are all good reasons for us to bring the question of re-introduction of amortisation of goodwill back to our stakeholders in the form of a discussion paper. Before Japan puts out the flags, however, let me warn you that it is far from a foregone conclusion that this discussion paper will lead to a re-introduction of amortisation,” said Hoogervorst.