So often the enemy of enterprise, regulation has thrown the Japanese accounting profession a much needed lifeline amid the woes of the global financial crisis.
Three substantial regulatory changes look certain to keep firms in high demand over the next few years.
The first is J-SOX – the unofficial name used to describe Japanese audit oversight legislation similar to US requirements in Section 302 and Section 404 of the Sarbanes-Oxley Act.
Then there is quarterly reporting and the likely introduction of IFRS.
The implementation of J-SOX and quarterly reporting has boosted audit and overall revenues, particularly at the larger end of the market. Japanese newspaper Nikkei recently estimated audit fees had increased about 32 percent on average because of the new regulations.
KPMG ASZA executive board member Tatsuhiko Yano said the firm’s audit practice grew about 20 percent thanks to J-SOX and quarterly reports.
These requirements, introduced in April 2008, include the evaluation and audit of internal control over financial reporting.
Japanese regulators introduced a quarterly review for listed companies at about the same time as J-SOX.
This has doubled accountants’ financial review work, which is now a year-round activity. Previously, all companies prepared statements half yearly.
Looking to IFRS
While the material benefits of J-SOX and quarterly reporting may fade, IFRS conversion and reporting will provide Japanese firms with an increasing stream of work.
An initial IFRS road map was released by the Japanese Business Accounting Council in June with mandatory adoption of IFRS from 2016, subject to a final decision being made by 2012.
Yano said although many Japanese companies have taken a wait-and-see approach to the standards, the trend is obvious.
“Just recently, many companies have begun thinking it is high time for them to prepare for IFRS,” he said.