Perceived Costs and Benefits of IFRS Adoption in Japan

This report discusses the perceived benefits and costs of the adoption of International Financial Reporting Standards (IFRS) in Japan. The results indicate mixed responses towards the perceived benefits and costs of IFRS adoption from Japanese companies. The report concludes that there is no definite consensus on whether the perceived benefits outweigh the perceived costs of IFRS adoption in Japan.

Critically discuss the perceived costs and benefits of
IFRS adoption in Japan
1.0 Executive Summary
The purpose of this report is to discuss the perceived benefits and costs of the adoption of
International Financial Reporting Standards (IFRS) in Japan. An in-depth literature review
and critical analysis of Australian Accounting Review article “Transitioning to IFRS in Japan:
Corporate Perceptions of Costs and Benefits” was conducted. Further academic sources
and research was also taken into consideration. Overall, the results indicated that there was
mixed responses towards the perceived benefits and costs of IFRS adoption from Japanese
companies. This report concludes that there is no definite consensus on whether the
perceived benefits outweigh the perceived costs of IFRS adoption in Japan. Therefore, it is
recommended that Japanese companies keep an open mind and avoid biased opinions
when deciding on whether to implement IFRS in their business.
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Contents
1.0 Executive Summary 1
2.0 Introduction 3
3.0 Background Information 4
4.0 Benefits of the adoption of IFRS in Japan 5
5.0 Costs of the adoption of IFRS in Japan 6
6.0 Conclusion & Limitations 7
7.0 References 8

2.0 Introduction
The adoption and implementation of International Financial Reporting Standards (IFRS)
remains to be a controversial topic of discussion. The corporate perceptions of the likely
costs and benefits that will result from the adoption and implementation of IFRS varies
according to the size of the company in question. Thought, most companies recognise a
moderate degree of benefits to come of the adoption of IFRS, the substantial benefits have
been perceived to only be applicable to the larger companies.Additionally,the cost of
adopting and implementing IFRS have been identified to have more bearing on the smaller
companies and less of a burden on the larger companies therefore these perceptions adds
fuel to the controversies of IFRS adoption. Ultimately, sacrifices must be made in order to
gain the benefits that will come with the adoption of the IFRS however the rationality of such
actions remains elusive.
3.0 Background Information
recent controversies coupled with the adoption and implementation of IFRS is highlighted
through a survey that was conducted in Japan. The survey portrayed the corporate
perceptions of the likely costs and benefits that would arise as a result of the adoption and
implementation of IFRS through surveyed data of senior financial executives from 292 Japan
listed companies (Ozu et al. 2018).
The survey was a questionnaire focusing on two main questions, 1) What is perceived to be
the most significant costs and concerns of implementing IFRS and 2) What are the
perceived benefits of adopting IFRS, a 1-7 point likert was used to rate the significance(Ozu
et al. 2018). The survey was posted out to 3581 Japanese listed companies returning 292
useable responses, of these 292 companies that completed the survey, they were classified
according to size. Companies with a market capin excess of 1 trillion yen were classified as
mega large (8 companies), 100 million - 1 trillion yen as large (60 companies), 10 million to
100 million yen as medium (106 companies) and less than 10 million yen as small (118
companies).The survey returned results that conveyed various areas of concerns by
Japanese listed companies with the adoption and implementation of IFRS as well identifying
a moderate degree of benefits which will be discussed in further detail below.
4.0 Benefits of the adoption of IFRS in Japan
As seen in the survey conducted on Japanese companies, the three main perceived benefits
of the adoption of IFRS in Japan is increased comparability with international companies,
improved information to shareholders and ability to raise capital (Australian Accounting
Review, 2018). However, these benefits are not apparent to all companies - The larger
Japanese companies tend to realise the positive outcomes of the implementation of IFRS,
whereas the smaller companies tend to view IFRS adoption in a negative light. IFRS
promotes the comparability of financial statements and allows end users also enjoy the
advantage of understanding the financial data communicated, whether it comes from one
country or a different one (Chron, 2018). Increased comparability of financial statements is

highly valuable for the large and internationally listed Japanese companies as shareholders
and potential investors will be able to make smart and confident investment decisions. If a
company does not abide by IFRS, overseas investors may be sceptical and hesitant to
invest. IFRS contribute to economic efficiency by helping investors to identify opportunities
and risks across the world, thus improving capital allocation (IFRS, 2018).Therefore,
adoption of IFRS allows for a company to be more attractive to international investors and is
advantageous especially for companies raising capital from international markets (Australian
Accounting Review, 2018). International capital raising is beneficial for companies as it gives
them substantial funding to invest in their business activities. More funding can be expensed
towards items such as marketing, research and development and machinery to promote
business growth and increased market share.
An example of a Japanese company that currently thrives through the adoption of IFRS is
Sony Corp. Sony is listed on the Tokyo Stock Exchange (6758:TYO) as well as the New
York Stock Exchange (SNE:NYSE). Through the company’s IFRS adoption, more funding
becomes available from international investors. As a result, Sony has grown to be the
market leader in technology products such as televisions, cameras and laptops.
Although the initial adoption of IFRS can be costly, timely to completely adhere by and
difficult to perceive if there are benefits for locally responsive companies (Australian
Accounting Review), long term benefits such as increased comparability and capital raising
can still be realised.
5.0 Costs of the adoption of IFRS in Japan
Although the adoption of IFRS poses potential benefits for Japanese corporations, it also
raises significant costs including both general and accounting difficulties in which many
preparers believe to outweigh the benefits (Ozu et al. 2018). According to the findings of the
survey which investigated the general areas of difficulty regarding the implementation of
IFRS in Japan, over 50% of the respondents perceived six areas to be of the highest level of
difficulty, including uncertainty regarding interpretations of standards, staff training, IT
systems, technical knowledge, complexity of standards and differences between J-GAAP
and IFRS (Ozu et al. 2018). Due to differences in social, organisation and cultural
characteristics between Japan and Western countries, Japan may interpret IFRS differently
in comparison to other countries (Tsunogaya). In particular, concerns were raised about the
application of IFRS’s principle based approach (Tsunogaya). The interpretation of IFRS
could be improved with consistent and quality training of staff. The issue lies with the cost of
training, as the cost of IFRS training is expected to be higher in Japan compared to other
countries (Tsunogaya). In spite of the significant amount of the time and money that would
be devoted to training of staff, it is extremely necessary and may provide multiple benefits for
Japanese corporations over the long term. Technology is also another area that would be
impacted through the adoption of IFRS. IT systems may require significant change,
dependent on multiple factors, such as size and complexity of the business which would also
consume significant resources (Deloitte). Another difficulty regarding the adoption of IFRS in
Japan is the difference between Japanese GAAP and IFRS, as many perceive J-GAAP to
be superior to IFRS (Tsunogaya). For instance, the treatment of intangible assets requires
both scheduled amortisation and impairment procedures whereas IFRS only relies on
impairment procedures (Tsunogaya). However, international investors are unable to
understand J-GAAP, which impacts its comparability with international companies.

The costs of implementing IFRS appear to be significant, which creates doubt as to whether
the potential benefits will be realised. Most difficulties that have been presented are likely to
be addressed with thorough training and education of staff. Although the costs appear to be
significant, Japanese corporations should not attempt to cut down on these costs by taking
shortcuts as it may create greater difficulties in the long term.
6.0 Conclusion & Limitations
The overall discussion in the report is undertaken for critical examination of the
benefits and costs that Japanese firms have to face by the adoption of IFRS standards
proposed by IASB. The report has concluded that Japanese firms should adopt the IFRS
standards for achieving the global competitiveness. This is because the implementation of
IFRS standards within the financial reporting process of Japanese firms will improve their
comparability with global competitors. This will help in gaining attraction of the foreign
investors and improving the business performance by capital inflows. Thus, the major benefit
that Japanese firms can realise from the adoption of IFRS standards is gaining larger access
to international finance. Also, it will facilitate greater interaction and communication with the
international investors and seeking new options for accessing funds to promote the business
expansion and growth. However, the benefits can be largely outweighed by the costs incurred
by the Japanese firms in adoption of IFRS standards. The firms need to invest larger amount
of time and money in complying with the IFRS standards as they have to adopt changes in
their overall financial reporting process. Therefore, the Japanese firms need to gain an
analysis of of both the benefits and costs of IFRS adoption before considering the final
decision of implementation. However, IFRS adoption is essential for Japanese companies to
maintain their competitiveness at a global level as IASB is mandating all countries to comply
with the international accounting standards.
The major limitation of the present report is that it has involved only developing an
insight into the research issue from the collection of secondary data. The report has only
involved the collection and extraction of qualitative data for examining the various aspects of
the research topic. The research lacks any quantitative base to provide a specific answer for
the research problem. The quantitative data refers to the primary data that is collected mainly
for the research purpose and is not available from nay other external source. The primary data
can be collected with the use of questionnaire or interview survey method aimed at analysing
the costs and benefits that selected Japanese firms are facing in complying with IFRS
standards. This would help in providing a practical base to the research study and thus
improving its credibility in the eyes of the readers.
At present, the research has only provided a qualitative base to the problem presented
to be examined and evaluated. Th most significant limitation of the present research report in
this context is that it has lacked in providing a new insight into the research issue. It has only
identified ad discussed the major themes in relation to the research issue that has already been
discussed by other researchers. As such, it has limited the applicability and reliability of the
findings of the research to be used for other research purpose held in this context in the future
direction. The collection of both qualitative and quantitative data both is essential to improve
its authenticity and credibility. The quantitative data will help in providing a new insight into
the research issue being examined while qualitative data seeks to examine the accuracy of the
new insight developed.

7.0 References
 Ozu C, Nakamura M, Nagata K, Gray S, 2018, “Transitioning to IFRS in Japan:
Corporate Perceptions of Costs and Benefits”, Australian Accounting Review No. 84
Vol. 2018 Issue 1 2018, 2018
 Chron, K, McIntosh, Three Advantages to an End User of Using IFRS Accounting
With Financial Statements, 2018. [ONLINE] Available at:
http://smallbusiness.chron.com/three-advantages-end-user-using-ifrs-accounting-
financial-statements-10018.html. [Accessed: 28 May 2018]
 IFRS, Why Global Accounting Standards, 2018. [ONLINE] Available at:
https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/.
[Accessed: 28 May 2018]
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