14 June 2012

Oxford professor advises Japan against wholesale adoption of IFRS

The FSA of the Japanese Government announced on 14 June that it will develop its international financial reporting policy in line with recommendations made in a new report by Tomo Suzuki, Professor of Accounting at Saïd Business School, University of Oxford.

The report, ‘The Impact of IFRS on Wider Stakeholders of Socio-Economy in Japan’, undertaken at the request of the former State Minister Shozaburo Jimi/FSA of the Government of Japan, cautions against a premature, wholesale adoption of IFRS in Japan. 

According to Professor Suzuki’s research, CFOs of top Japanese firms, as well as sophisticated investors across the world, assert that the transparency and comparability of financial statements are impeded by IFRS’s fair value accounting measures which allow managers substantial discretion over subjective valuation and accounting choices. The notion of a single set of “high quality global standards based on fair value”, advanced by supporters of IFRS, has the potential to mislead, especially unsophisticated investors who tend to react to the face value of reported income without understanding accounting policies and footnote disclosures. The result could distort share prices as well as lead to inefficient managerial decisions.

From a production and operational perspective, rather than a financial perspective alone, the research finds that proposed IFRS accounting standards are causing serious concern among top Japanese companies who foresee that IFRS will lead to the loss of the disciplined management philosophy that Japanese businesses have traditionally practiced. 

Professor Suzuki’s research also advises caution in applying IFRS to Japan’s banks and insurance companies. These institutions have expressed concern about the introduction of so-called “fair value” accounting rules which would bring about fundamental change, with potential negative consequences to their business models thus inhibiting the management of the country’s mature economy. The study reports a consensus view among those surveyed that IFRS adoptions have not reduced the cost of capital, and goes on to show that many business leaders anticipate increasing costs of regulation, including audit fees, under IFRS-based global standards.

While it has adopted the recommendations, the FSA emphasised that it is committed to a role in the international development of a set of high-quality financial reporting standards based on careful consultation and consideration of the issues of a variety of stakeholders. 

Press release

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