Empirical findings from the reconciliations in the first IFRS compliant reports prepared by Japanese-owned subsidiaries in Australia

Jesmin ISLAM

    Research output: Contribution to journalArticle

    Abstract

    In Japan, a Japanese version of International Financial Reporting Standards (J-IFRS or JMIS)2 Although the term of ‘J-IFRS’ was also widely used in Japan, the official name was announced by the ASBJ as ‘Japan's Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications’ as at 30 June 2015. Source: Accounting Standards Board of Japan (ASBJ) 2015, JMIS, viewed 30 April 2016, . will be adopted from March-ending in 2016, but exactly when the IFRS mandate will start is still unknown. The Australian regulators required not only publicly listed companies but also private and foreign-owned entities to prepare their financial statements to comply with Australian IFRS (A-IFRS) on or after 1 January 2005. Around the time of the transition to A-IFRS, more than 400 local subsidiary companies in Australia operated businesses which were invested in by Japanese multinational corporations. Thus, Australia was in a unique place to explore the IFRS reporting practices for Japanese-owned entities. We examined the reconciliations of the accounting figures made under the prior Australian generally accepted accounting principles (AGAAP) to those made under A-IFRS, and explored explanations for the reconciliations stated in the first A-IFRS compliant annual reports. On average, the net profits reported under AGAAP were 13% higher than those measured by A-IFRS for the Japanese subsidiaries, while the matched sample Australian companies’ profits were on average 2% lower under AGAAP than the accounting figures reported under A-IFRS. Moreover, we described the following four accounting standards which were most frequently cited in the explanations of the impacts of the A-IFRS implementation: financial instruments, income taxes, provisions and employee benefits. Firstly, this study found that the reporting practices of the Japanese subsidiaries and Australian matched sample firms were less likely to be similar in the same Australian institutional setting. Secondly, the differences of the institutional factors in the countries of origin somewhat influenced the financial reporting of the Australian subsidiaries. Finally, the strict and wide scope of recognition and disclosure requirements under A-IFRS led to a significant increase in assets and liabilities. The monetary values materially changed under AGAAP compared with those made under A-IFRS, but these reporting entities attempted to comply with the new accounting regulations on time. We expect that information disclosure will increase and become more standardised under A-IFRS, compared with under AGAAP.
    Original languageEnglish
    Pages (from-to)143-158
    Number of pages16
    JournalAdvances in Accounting
    Volume35
    DOIs
    Publication statusPublished - 2016

    Fingerprint

    International Financial Reporting Standards
    Reconciliation
    Subsidiaries
    Japan
    Accounting standards
    International standards
    Profit
    Financial reporting
    Employee benefits
    Financial statements
    Liability
    Income tax
    Mandate
    Accounting regulation
    Annual reports
    Country of origin
    Assets
    Listed companies
    Information disclosure
    Multinational corporations

    Cite this

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    title = "Empirical findings from the reconciliations in the first IFRS compliant reports prepared by Japanese-owned subsidiaries in Australia",
    abstract = "In Japan, a Japanese version of International Financial Reporting Standards (J-IFRS or JMIS)2 Although the term of ‘J-IFRS’ was also widely used in Japan, the official name was announced by the ASBJ as ‘Japan's Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications’ as at 30 June 2015. Source: Accounting Standards Board of Japan (ASBJ) 2015, JMIS, viewed 30 April 2016, . will be adopted from March-ending in 2016, but exactly when the IFRS mandate will start is still unknown. The Australian regulators required not only publicly listed companies but also private and foreign-owned entities to prepare their financial statements to comply with Australian IFRS (A-IFRS) on or after 1 January 2005. Around the time of the transition to A-IFRS, more than 400 local subsidiary companies in Australia operated businesses which were invested in by Japanese multinational corporations. Thus, Australia was in a unique place to explore the IFRS reporting practices for Japanese-owned entities. We examined the reconciliations of the accounting figures made under the prior Australian generally accepted accounting principles (AGAAP) to those made under A-IFRS, and explored explanations for the reconciliations stated in the first A-IFRS compliant annual reports. On average, the net profits reported under AGAAP were 13{\%} higher than those measured by A-IFRS for the Japanese subsidiaries, while the matched sample Australian companies’ profits were on average 2{\%} lower under AGAAP than the accounting figures reported under A-IFRS. Moreover, we described the following four accounting standards which were most frequently cited in the explanations of the impacts of the A-IFRS implementation: financial instruments, income taxes, provisions and employee benefits. Firstly, this study found that the reporting practices of the Japanese subsidiaries and Australian matched sample firms were less likely to be similar in the same Australian institutional setting. Secondly, the differences of the institutional factors in the countries of origin somewhat influenced the financial reporting of the Australian subsidiaries. Finally, the strict and wide scope of recognition and disclosure requirements under A-IFRS led to a significant increase in assets and liabilities. The monetary values materially changed under AGAAP compared with those made under A-IFRS, but these reporting entities attempted to comply with the new accounting regulations on time. We expect that information disclosure will increase and become more standardised under A-IFRS, compared with under AGAAP.",
    keywords = "International Financial Reporting Standards (IFRS), International accounting differences, Reconciliations, Australia, Japan, Foreign-owned subsidiaries",
    author = "Jesmin ISLAM",
    year = "2016",
    doi = "10.1016/j.adiac.2016.06.003",
    language = "English",
    volume = "35",
    pages = "143--158",
    journal = "Advances in Accounting",
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    TY - JOUR

    T1 - Empirical findings from the reconciliations in the first IFRS compliant reports prepared by Japanese-owned subsidiaries in Australia

    AU - ISLAM, Jesmin

    PY - 2016

    Y1 - 2016

    N2 - In Japan, a Japanese version of International Financial Reporting Standards (J-IFRS or JMIS)2 Although the term of ‘J-IFRS’ was also widely used in Japan, the official name was announced by the ASBJ as ‘Japan's Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications’ as at 30 June 2015. Source: Accounting Standards Board of Japan (ASBJ) 2015, JMIS, viewed 30 April 2016, . will be adopted from March-ending in 2016, but exactly when the IFRS mandate will start is still unknown. The Australian regulators required not only publicly listed companies but also private and foreign-owned entities to prepare their financial statements to comply with Australian IFRS (A-IFRS) on or after 1 January 2005. Around the time of the transition to A-IFRS, more than 400 local subsidiary companies in Australia operated businesses which were invested in by Japanese multinational corporations. Thus, Australia was in a unique place to explore the IFRS reporting practices for Japanese-owned entities. We examined the reconciliations of the accounting figures made under the prior Australian generally accepted accounting principles (AGAAP) to those made under A-IFRS, and explored explanations for the reconciliations stated in the first A-IFRS compliant annual reports. On average, the net profits reported under AGAAP were 13% higher than those measured by A-IFRS for the Japanese subsidiaries, while the matched sample Australian companies’ profits were on average 2% lower under AGAAP than the accounting figures reported under A-IFRS. Moreover, we described the following four accounting standards which were most frequently cited in the explanations of the impacts of the A-IFRS implementation: financial instruments, income taxes, provisions and employee benefits. Firstly, this study found that the reporting practices of the Japanese subsidiaries and Australian matched sample firms were less likely to be similar in the same Australian institutional setting. Secondly, the differences of the institutional factors in the countries of origin somewhat influenced the financial reporting of the Australian subsidiaries. Finally, the strict and wide scope of recognition and disclosure requirements under A-IFRS led to a significant increase in assets and liabilities. The monetary values materially changed under AGAAP compared with those made under A-IFRS, but these reporting entities attempted to comply with the new accounting regulations on time. We expect that information disclosure will increase and become more standardised under A-IFRS, compared with under AGAAP.

    AB - In Japan, a Japanese version of International Financial Reporting Standards (J-IFRS or JMIS)2 Although the term of ‘J-IFRS’ was also widely used in Japan, the official name was announced by the ASBJ as ‘Japan's Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications’ as at 30 June 2015. Source: Accounting Standards Board of Japan (ASBJ) 2015, JMIS, viewed 30 April 2016, . will be adopted from March-ending in 2016, but exactly when the IFRS mandate will start is still unknown. The Australian regulators required not only publicly listed companies but also private and foreign-owned entities to prepare their financial statements to comply with Australian IFRS (A-IFRS) on or after 1 January 2005. Around the time of the transition to A-IFRS, more than 400 local subsidiary companies in Australia operated businesses which were invested in by Japanese multinational corporations. Thus, Australia was in a unique place to explore the IFRS reporting practices for Japanese-owned entities. We examined the reconciliations of the accounting figures made under the prior Australian generally accepted accounting principles (AGAAP) to those made under A-IFRS, and explored explanations for the reconciliations stated in the first A-IFRS compliant annual reports. On average, the net profits reported under AGAAP were 13% higher than those measured by A-IFRS for the Japanese subsidiaries, while the matched sample Australian companies’ profits were on average 2% lower under AGAAP than the accounting figures reported under A-IFRS. Moreover, we described the following four accounting standards which were most frequently cited in the explanations of the impacts of the A-IFRS implementation: financial instruments, income taxes, provisions and employee benefits. Firstly, this study found that the reporting practices of the Japanese subsidiaries and Australian matched sample firms were less likely to be similar in the same Australian institutional setting. Secondly, the differences of the institutional factors in the countries of origin somewhat influenced the financial reporting of the Australian subsidiaries. Finally, the strict and wide scope of recognition and disclosure requirements under A-IFRS led to a significant increase in assets and liabilities. The monetary values materially changed under AGAAP compared with those made under A-IFRS, but these reporting entities attempted to comply with the new accounting regulations on time. We expect that information disclosure will increase and become more standardised under A-IFRS, compared with under AGAAP.

    KW - International Financial Reporting Standards (IFRS)

    KW - International accounting differences

    KW - Reconciliations

    KW - Australia

    KW - Japan

    KW - Foreign-owned subsidiaries

    U2 - 10.1016/j.adiac.2016.06.003

    DO - 10.1016/j.adiac.2016.06.003

    M3 - Article

    VL - 35

    SP - 143

    EP - 158

    JO - Advances in Accounting

    JF - Advances in Accounting

    SN - 0882-6110

    ER -