The accounting regulations of a Japanese office commonly differ from that of the home office, requiring adjustments to the accounting records of both companies. To make those adjustments, detailed knowledge of Japanese generally accepted accounting principles (GAAP) and those of the home office--such as US GAAP or International Financial Reporting Standards (IFRS)--are required. Accounting areas needing consideration include the following.

Accounting for Income Taxes

Defined by FAS 109; IAS 12. Timing differences of items in the financial statements may arise from differences in accounting standards between a Japanese office and its home office, affecting accounting for income taxes.

Accounting for Compensated Absences

Defined by FAS 43; IAS 19. Accruals for compensated absences are not required in Japan, but may be required under US GAAP and IFRS.

Accounting for the Impairment or Disposal of Long-lived Assets

Defined by FAS 144; IAS 36. The accounting treatment for impairment or disposal of long-lived assets differs between Japanese GAAP, US GAAP, and IFRS.

Inventory Cost

Defined by FAS 151, IAS 2. The last-in first-out (LIFO) method of inventory accounting is permitted under US GAAP but not under IFRS. Under Japanese GAAP, LIFO is permitted until fiscal years starting April 2010.

Goodwill and Other Intangible Assets

Defined by FAS 142; IAS 38. Goodwill must be amortized according to Japanese GAAP, but not under US GAAP or IFRS.

Foreign Currency Translation

Defined by FAS 52, IAS 21. Exchange rates used for transactions, inter-group balances, and assets and liabilities may differ between a Japanese office and the home office, requiring careful reconciliation.

 

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