Japanese companies face being shut out of European Union capital markets owing to difficulties in harmonising Japan’s accounting standards with EU rules in time to meet a Brussels deadline, the Japanese regulator has warned.
Japan has been working towards bringing its accounting standards closer to those used in the EU following pressure from Brussels to align with international standards that have applied in Europe since 2005.
However, Japan’s Financial Services Agency said Brussels had requested additional changes, some of which would require big recalculations.
Unless the EU recognises that Japan’s Generally Accepted Accounting Principles are “equivalent” to the International Financial Reporting Standards adopted by the EU, Japanese companies will not be able to use Japanese GAAP for EU listing.
Japanese regulators say they have been given until July next year to convince the EU that Japanese GAAP meet EU criteria.
EU companies have been required to use IFRS since 2005, while foreign companies must start using the new standards from January 2009.
However, Japanese officials say this deadline now appears too tight to accomplish. “It takes about three to four years to change accounting rules. More than half of the points [Japan] has to change [in its accounting standards] will take more than the year we have to do that in,” said Toshitake Kurosawa, director for international financial markets at the FSA.
The EU’s position could affect several Japanese companies listed in the EU, including Sony and Toyota, which are listed in London, and Canon, which has a Frankfurt listing. These and other Japanese companies risk finding themselves unable to raise capital in European markets.
The Japanese government is urging the EU to accept Japanese GAAP rather than require Japanese companies to file financial statements using IFRS, which would be costly and could force many Japanese companies to de-list from European markets.
“From the point of view of reciprocity, they could accept Japanese GAAP,” since Japan accepts IFRS, Mr Kurosawa said.
The number of Japanese companies listed in the EU has fallen from 80 in 2002 to fewer than 30, according to the FSA. At the end of last year, 16 had listings in London, 10 in Frankfurt, two in Amsterdam, three in Luxembourg, three in Paris and one in Brussels. Some had listings on more than one exchange.
Among those that have chosen to delist are NEC, which delisted from London, Frankfurt and Amsterdam; Hitachi, which delisted from Frankfurt; and Mitsubishi UFG, the world’s largest commercial bank, which delisted from London. Sony applied at the end of last year to delist from Frankfurt, Paris and Brussels.
Additional reporting by Barney Jopson in London