Financial Reporting

Professional Accounting and Business Support Services

In a rapidly changing business environment, accurate, transparent, and compliant financial management is central to a company’s healthy development.

Morningstar Asia (MSMC ASIA) is committed to providing businesses with a one-stop professional service from accounting and tax to human resources and visa management, helping you operate efficiently and compliantly.

Core regulatory laws and framework

The Companies Act applies to all types of Japanese joint-stock companies (KK). All companies must prepare financial statements and business reports annually, primarily to clearly disclose the company’s assets and profits to shareholders and creditors.

The Financial Instruments and Exchange Act (FIEA) primarily applies to listed companies and large enterprises with total securities issuance exceeding a certain amount (e.g., 100 million yen). Companies bound by this law, in addition to meeting the requirements of the Companies Act, must regularly submit an Annual Securities Report to the Financial Services Agency (FSA) and are required to disclose audited financial information semi-annually and quarterly.

Main components of statutory financial statements

Under Japanese regulations, companies are required to prepare the following basic legally mandated documents for each fiscal year: a balance sheet, an income statement, a statement of changes in net assets, notes to financial statements, a business report, and various supplementary reports. For listed companies regulated by the Financial Instruments and Exchange Act, in addition to the above-mentioned standard reports, they are also required to prepare and disclose a cash flow statement and consolidated financial statements.

Application of Accounting Standards

Most Japanese companies use Japanese Accounting Standards (J-GAAP) when preparing their financial statements. These standards, developed by the Accounting Standards Board of Japan (ASBJ), are gradually converging with international standards in their core principles. To promote the internationalization of the capital market, since 2010, eligible Japanese listed companies have been allowed to voluntarily adopt International Financial Reporting Standards (IFRS) when preparing their consolidated financial statements. However, it should be noted that the use of IFRS is still not permitted for legally independent, non-consolidated financial statements.

Statutory audit requirements

Japan does not employ a blanket, comprehensive auditing system. The triggering of audit obligations primarily depends on the nature and asset size of the company:

Audit Exemption: Generally, small and medium-sized enterprises (SMEs) are not required to undergo mandatory statutory financial audits, but they can voluntarily implement them based on internal management needs.
Mandatory Audit under the Companies Law: If a non-listed company meets the statutory criteria for a “large company” (i.e., its initial or post-capital increase capital exceeds 500 million yen, or its total liabilities as a single parent company exceed 20 billion yen), it must be audited by a certified public accountant or accounting firm.
Mandatory Audit under the Financial Instruments and Exchange Law: The financial statements and internal control reports of all listed companies must undergo rigorous statutory audits by independent certified public accountants or accounting firms.

Report Submission and Ledger Preservation Standards

Information Disclosure Channels: Listed companies must submit and publish their annual financial reports through the Financial Services Agency’s dedicated EDINET electronic system.
Retention Period: According to Article 432 of Japan’s Companies Law, companies must properly retain their accounting books and important financial records for 10 years. Although the Corporate Tax Law stipulates a retention period of 7 years for vouchers in principle, in compliance practice, adhering to the stricter 10-year standard is the only security strategy.
Electronic Compliance Constraints: With the implementation of Japan’s Electronic Books Retention Law, from January 1, 2024, companies must, as a result of emails, online downloads, etc., retain “electronic transaction data” (such as PDF electronic invoices or contracts) in their original electronic format, and cannot simply archive them as paper printouts.

Why Us?

We uphold the highest standards of accuracy, transparency, and compliance, ensuring every report is auditable. Leveraging our deep understanding of major accounting standards, our team employs tailored and rigorous methodologies to meet your business needs. Through precise reporting and expert insights, we help you identify potential risks, make informed decisions, and earn the trust of stakeholders.

MSMC ASIA

#19-06 160 Robinson Rd, SBF Center, Singapore 068914