Accounting Standards Requirements. The accounting regulations of a Japanese subsidiary 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.
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Accounting for Income Taxes (FAS 109; IAS 12). Timing differences of items in the financial statements may arise from differences in accounting standards between a Japanese subsidiary and its home office, affecting accounting for income taxes. Accounting for Compensated Absences (FAS 43; IAS 19). Accruals for compensated absences are not permitted in Japan, but are required under US GAAP and IFRS. Accounting for Leases (FAS 13; IAS 17). Accounting treatment of leases in Japan is different from that in other countries. Accounting for the Impairment or Disposal of Long-lived Assets (FAS 144; IAS 36). The accounting treatment for impairment or disposal of long-lived assets differs between Japanese GAAP, US GAAP, and IFRS.
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Inventory Cost (FAS 151, IAS 2). The last-in first-out (LIFO) method of inventory accounting is commonly used in Japan, but not widely used elsewhere. Goodwill and Other Intangible Assets (FAS 142; IAS 38). Goodwill must be amortized according to Japanese GAAP, but not under US GAAP or IFRS. Foreign Currency Translation (FAS 52, IAS 21). Exchange rates used for transactions, inter-group balances, and assets and liabilities may differ between a Japanese subsidiary and the home office, requiring careful reconciliation.
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