Contributors from Japan were asked three questions: What were the highlights/trends in your market last year? (i.e. important mergers, regulatory changes, economic situation etc.); What are the opportunities and challenges for accounting firms in the market?; What are the expectations for the future short/medium/long term?

By Tatsuya Arai, senior audit partner, Grant Thornton Japan

In the last year, the Japanese economy was stable, grew slightly and also the political situation was stable, being led by LDP and the prime minister Abe. Under the circumstances, our market was growing due to cross boarder M&A deals etc. made by Japanese big listed companies and related opportunities in advisory work on the global basis. We think this trend would be continued for this year. In the audit market in Japan, there were not big M&A by accounting firms, regulatory changes and regulators except for several challenges/issues described in next question. There was huge accounting scandal related to “TOSHIBA” which was audited by PwC Japan (former auditor was EY Japan). Unfortunately, they still haven’t yet expressed their opinion for the year ended March 31, 2017. I believe it would be a big issue/challenge for our profession in Japanese market and for our relationships with other member firms in other global firms. In tax market, there was also no big M&A or regulatory changes, except for “BEPS”.

There are good opportunities for advisory services such as FA, IT support, DD and valuation in Japanese market for last year and this year. However, as described above, there are several challenges in the audit practice due to big accounting scandals. So we have applied for “Accounting Firm Governance Code” (AFGC), especially for Big Four and medium sized accounting firms from this year and we are considering to apply for “No Compliance with Laws and Regulations”(NOCLAR) and “Key Audit Matters”(KAM), and also to discuss with regulators regarding firm rotation and partner rotation etc. It would lead to big changes for our practice and regulations in the near future. I think it would have a big impact for small and medium sized accounting firms in Japanese market since those firms have over 900 audit clients listed on the Tokyo Stock Exchange and other markets in Japan. This is quite a unique circumstance. So we have to watch and see the market at the moment.

Under the circumstances above, we expect that there will be a big M&A in the audit market for the short term future since the many listed companies are searching for alternative global accounting firm except for Big Four in our market. There is a big difference such as between the total amount of revenues, number of human resources and IT system etc. between the Big Four and medium size accounting firms, unfortunately. However, there are opportunities/needs for medium size accounting firm due to market expectations. Also, the Japanese regulators believe that they would need alternatives compared with Big Four. Under the circumstances, we have to consider/discuss for M&A in the medium size accounting firm market at the moment and future short term. On the other hand, we will be able to expand the assurance services for public service entities, medical service entities and others due to regulation changes from this year. Also, many kinds of advisory services in the market would be expanded and those trends would be continued. In the medium and long term, we believe that market demand and needs for our profession would expand, especially for cross boarder work in across the service lines.


How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

By Tomohiko Manabe and Takahito Tokuda, International contact partners of HLB Japan Takanosogo group

The Macro-economic outlook in 2016 Japan has been in the process of implementing economic policies known as “Abenomics”, comprising three components: massive monetary easing; expansionary fiscal policy; and long-term growth strategy since December 2012. On January 29, 2016, BOJ announced a negative interest rate. The initial impact was a surge in the Japanese stock market together with a significant depreciation of the Japanese yen against other major currencies. Throughout the process, Japan's economy is expanding moderately. In this situation, exports from Japan have been on an increasing trend. On the Japanese domestic demand side, business fixed investment has been on a moderate increasing trend, with corporate profits and business sentiment improving and across a wider range of industries. Reflecting these increases, industrial production has been on an increasing trend, and labour market conditions have continued to tighten steadily.

Outbound M&A activities have continued to grow, and the depreciation of the Japanese yen has not substantially impacted this trend. The volume of outbound M&A in 2016 was more than JPY 10.4 trillion which was second time in history it had reached more than JPY 10 trillion.

In the consumer products industry, Asahi Group Holdings, Ltd. acquired the European businesses of SAB Miller plc at €2.55bn.

In the finance and insurance sector, Sompo Holdings, Inc. a leading Japanese insurance group acquired 100% of the outstanding ordinary shares of Endurance Specialty Holdings Ltd., an insurance holding company headquartered in Bermuda,at approximately US$ 6.3bn. In December, Sumitomo Mitsui Banking Corporation, one of the largest Japanese banks acquired of all membership interests of American Railcar Leasing LL.C., from Icahn Enterprises L.P. at approximately US$ 3.4bn.

In the electrical appliances and semi-conductor industry, SoftBank Group Corporation acquired the entire issued and to-be-issued share capital of ARM Holdings plc.a global technology company with strong capabilities in semiconductor intellectual property, at UK£ 24bn in July. In September, Renesas Electronics Corporation, a mega-supplier of advanced semiconductor solutions acquired Intersil Corporation, a leading provider of innovative power management and precision analogue solutions, at approximately US$ 3.2bn. Sharp Corporation announced in February, that it would issue new shares to Hon Hai Precision Industry, a leading technology company based in Taipei, Taiwan.

In the medical and pharmaceutical sector, Canon Inc. announced the acquisition of Toshiba

Medical Systems Corporation, a leading global company in the medical equipment industry, especially in the field of medical X-ray computed tomography systems, at approximately JPY 666.5bn. FUJIFILM Corporation announced the acquisition of Wako Pure Chemical Industries at JPY 154.7bn through a tender offer.

There has been corporate taxation revision this year. First of all, R&D tax incentives will be revised so that tax credits increase in line with increases in R&D costs. Secondly, revisions will be made to enable flexible use of performance-linked remuneration so that management can be incentivized over the medium to long term. Thirdly, the reorganization taxation rules will be revised to enable the smooth implementation of spin offs in which a specific business is established as an independent company. Fourthly, the extension of corporate tax filing due date will be allowed for up to four months.

There has been international taxation revision also. Fundamental reforms will be made to the CFC income inclusion rules (anti-tax haven rules). First of all, the method of determining foreign companies subject to income inclusion, the trigger rate to be abolished and the method of calculating the shareholding ratio to determine foreign related companies will be revised. Companies with no equity relationship, but which are substantially controlled, will be covered by the CFC rules. Secondly, Income inclusion rule on an entity-wide basis has amended. The existing “exemption criteria” will be transformed into the “economic activity-based criteria” – the criteria that are applied in the first step of the CFC rules. Thirdly, Partial income inclusion rule for passive income has been amended. If all of the economic activity criteria are fulfilled, only certain types of passive income will be subject to inclusion.

There are huge opportunities and challenges for accountancy firms in the Japanese market and cross-border business markets. Strong appetite for M&A activities among Japanese business greatly demands accountancy firms to meet them with high-quality assurance, tax and advisory services. Also, tax regulations experiences huge transformation in order to respond international tax evasion, so tax accountancy sector have to keep update the newest situation.

Japan will likely see its economy grow this year with the weak yen and government steps to stimulate sluggish consumption. We expect that 2017-2018 will be a rather positive year for the nation’s economy, as the government looks to implement more measures to help boost consumption. These moves are likely to include lowering social insurance premiums, creating scholarships and raising wages for particular industries. The yen’s weaker trend against the dollar will also help boost Japanese exporters’ revenues. On the subject of trade, Japan have to revise its strategy facing the death of the Trans-Pacific Partnership agreement. The government has lowered the corporate tax rate from 32.11 percent to 29.97 percent for this fiscal year to March, urging corporate leaders to boost wages. The government had planned to raise the tax to 10 percent from the current 8 percent this coming April, but last year the Government decided to postpone it by two years. BOJ has been committed to the negative interest rate monetary policy that has pulled down the yen against major currencies and resulted in boosting export-driven firms’ profits. While strengthening the domestic economy, Japan will also have to be vigilant over outside factors, especially Trump’s economic policies and negative impact of Brexit.


By Nexia Japan

In FY2016, the real GDP is projected to increase by approximately 1.3%, and the nominal GDP is expected to increase by approximately 1.5%. Owing to the decline in crude oil prices, the rate of increase in consumer prices is decreasing from a year earlier. The rate of increase in consumer prices is projected to be approximately 0.0%.

The Japanese economy is in a moderate recovery, supported by improvements in employment and income conditions with an expectation for special demand related to the Tokyo Olympic games. However, the current domestic economy lacked momentum in private consumption and is constrained by a loss of sales opportunities due to labor shortages and payroll increases.

As Japan goes into highly depopulating society in which the workforce that supports its economy decreases, a raise in the consumption tax rate is planned in 2019 to maintain the current social security system, and there is concern that will have a negative impact on the domestic economy.

Under these severe circumstances, companies have to strengthen various types of effort, such as investment for productivity improvement, selection and concentration of business, simplification of operations, and mergers and acquisitions.

In terms of financial reporting, due to recent serious accounting fraud, integrity and transparency in corporate governance are required. This situation demands that companies enhance further financial reporting.

A wave of change is coming to the auditing industry, which functions as infrastructure to support sound development of the capital market.

After the aforementioned accounting fraud, audit effectiveness was questioned by the investors and other stakeholders. Following this, an “Advisory Council on the Systems of Accounting and Auditing” was set up under the Ministry of Finance in 2015, and the advisory council published recommendations, “Ensuring Confidence in Audit”.

These recommendations include the following.

  • Development of an audit firm governance code: To reinforce management of audit firms and increase the number of audit firms conducting audits of large listed companies, development of principals for the organisational operation of audit firms has been discussed.
  • Increase in transparency in auditor’s reports: Description of the risks of material misstatement focused on audits has been discussed.  
  • Investigation on audit firm rotation system: Investigation will be conducted to see if rotation of audit firms is effective for ensuring audit firm independence.

While initiatives to ensure confidence in audits have been discussed, audits of social welfare corporations, medical corporations, and agricultural cooperatives have become obligatory. Furthermore, audits for local governments are strongly called for, as well as accounting and assurance services for small and medium-size companies. Demand for accounting related services has been increasing.

In all companies, not to mention large companies, business has been globalized. Companies, regardless of the size, tend to focus especially on the Asian market in their marketing and business expansion.

Accounting and auditing have also been globalized. International Auditing standards have already been introduced in Japan. Regarding accounting standards, companies can currently use Japanese GAAP, US GAAP, or IFRS. The Japanese government, in “Growth Strategy 2017”, stated that in order to improve the quality of accounting standards used in Japan it will promote the number of companies that voluntarily adopt IFRS.   

IT, such as robots and artificial intelligence (AI), has been rapidly developing. It is said that all things will be connected through the Internet and capable of being monitored or controlled in the near future.   

The impact of IT on business is immeasurable and companies that innovate their products or services will survive. Innovation in business operations is also expected, and therefore operations, internal controls, as well as accounting will drastically change.

Under these circumstances, innovation is also expected of accounting firms in technologies for accounting, auditing, and administration by using IT, such as big data analysis or AI. Innovation in accounting and auditing is truly required. Accounting firms are facing the challenges to achieve higher productivity by establishing IT based methodology and organization.