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| Subject: consolidation--conform to Europe USA--1983 | |
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Author: tax effect accounting Japan |
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Date Posted: 04:03:25 01/23/03 Thu 10/82 ACCOUNTING - TAX EFFECT ACCOUNTING - CONSOLIDATED FINANCIAL STATEMENTS FROM 1983 - EARNINGS PER SHARE For corporate fiscal years starting from April, 1983 publicly traded Japanese corporations will have to start preparing consolidated financial statements much more closely matching those of American and European companies than the consolidations standards now in effect. This will now make it much easier to comprehend the true situation of Japanese corporations as existing methods leave gaping loop holes. Japanese corporations first started issuing consolidated statements in the 196Os when they started issuing ADRs (American Depository Receipts) with Sony the first in 1961. Domestically, however, consolidation was not required until business years starting from April 1, 1977. In the first year, 615 companies issued consolidated financial statements, or a little more than 40% of Tokyo listed companies. By 1981, that figure had reached 678 companies, or a little more than 40% of Tokyo listed companies. By 1981, that figure had reached 678 companies, or a little less than 1/2 of Tokyo listed companies. Under the Japanese method of consolidation, companies included in the consolidated statements are, besides the parent company, all subsidiaries in which the parent company owns 50% or more of the shares, all companies in which subsidiaries own 50% or more of the shares (grandchild companies) and those companies in which the parent company and its subsidiaries own 50% or more of the shares. There is an exclusion permitted however, under the "substantiality rule" for such subsidiaries or grandchild companies which have sales and total assets 10% or less of total assets of sales. This has provided great leeway in maneuvering shareholdings to blur a concise conception of the companies. Under the equity (mochibunho) method to be adopted in 1983, companies that were consolidated under the previous method will continue to be consolidated while " affi1iated corporations" (kanren gaisha) and other non-consolidated companies will be newly added. Affiliated companies are defined as those in which the parent company owns 20 -50 % of the shares. Then their consolidation in the consolidated statements will be in accord with the proportion of the company's shareholdings held by the parent company under consolidation. The substantiality exclusion will be tightened by adding 10% or less of profits in addition to the existing 10% or less of sales and total assets. This equity method has been optional until now and in 1981 of the 678 companies issuing consolidated reports, only 87 companies adopted this method or the SEC method. The equity method differs from the SEC method in its handling of foreign currency denominated accounts, tax effect accounting and calculation of earnings per share. Under the Japanese method for foreign currency assets, only short term foreign currency denominated assets and liabilities are converted at the end of term exchange rate, while under the SEC method, both short and long term assets and liabilities are converted at the end of the term exchange rate. In terms of tax effect accounting, where the term for which incomes and expenses are attributed are different for corporate accounting purposes (controlled by the commercial code) and for tax accounting purposes (controlled by the tax laws) the taxes paid according to tax accounting methods are allotted over consecutive corporate accounting terms. In other words, taxes paid on unrealized income (under corporate accounting) are entered in corporate accounting as "prepaid taxes ". In the calculation of earnings per share, under the Japanese method, term net profits are divided by the number of issued and outstanding shares as of the end of the term whereas the SEC method adopts the average number of shares issued and outstanding during the term. Moreover , in Japan, shares actually issued based on the conversion of convertible bonds are included in the calculation, whereas the SEC method includes the figures resulting from the conversion of the total number of the convertible bonds. THE JAPAN LAWLETTER, October, 1982. By Roderick Seeman [ Next Thread | Previous Thread | Next Message | Previous Message ] |