Revision to Guidelines for Accounting Standards of SMEs
In Japan, there are “Guidelines for Accounting of Small and Medium-sized Enterprises” (the Guidelines) that non-publicly listed companies or that are not large companies under the Companies Act can rely on when preparing their financial statements. Such companies are audited by Certified Public Accountants.
These Guidelines were recently revised on May 10, 2023.
These Guidelines are created by four organizations: Japan Federation of Certified Public Tax Accountants’ Associations, The Japanese Institute of Certified Public Accountants, The Japan Chamber of Commerce and Industry, and The Accounting Standards Board of Japan, in cooperation with the Ministry of Justice, the Financial Services Agency, and the Small and Medium Enterprise Agency.
Compared to the corporate accounting standards that listed companies rely on in preparing their financial statements, the standards in these Guidelines are simplified and easier for SMEs to deal with.
For example, these Guidelines allow the use of the “Last Purchase Price” method inventory valuation.
In addition, certain tax accounting treatment is also permitted, resulting in fewer adjustments required for corporate tax returns. For example, the calculation of the allowance for doubtful accounts can be based on the criteria specified in the Corporate Tax Law under certain conditions.
Furthermore, companies that prepare their financial statements in accordance with these Guidelines may enjoy certain benefits such as discounted guarantee rates from credit guarantee associations and relaxed loan conditions.
While the abovementioned information pertains to the “Guidelines for Accounting of Small and Medium Enterprises,” there is also document on the “Code for Accounting of SMEs” (the Code) specifically designed for smaller companies. The Code does not cover topics such as “tax effect accounting” and “accounting for organizational restructuring”. The descriptions in this Code are more concise, providing even simpler accounting rules.
It is recommended to apply the appropriate set of guidelines based on the size of your company.
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