Japanese Institute of Certified Public Accountants
Member | Established: 1949 | Member since October 1977
JICPA was established under the Certified Public Accountants Act in 1966 and the Act has subsequently be amended to enhance JICPA’s authority as it relates to the accountancy profession. Today it is the sole organization representing the profession in Japan and any individual who wishes to use the designation of and publicly practice as a Certified Public Accountant must be a member.
In addition to membership of IFAC, JICPA is a member of CAPA (Confederation of Asian and Pacific Accountants), GAA (Global Accounting Alliance), and AFA (ASEAN Federation of Accountants). JICPA also works closely with ASBJ (Accounting Standards Board of Japan) and the Business Accounting Council (BAC) in setting standards for the jurisdiction.
Statements of Membership Obligation (SMO)
The Statements of Membership Obligations form the basis of the IFAC Member Compliance Program. They serve as a framework for credible and high-quality professional accountancy organizations focused on serving the public interest by adopting, or otherwise incorporating, and supporting implementation of international standards and maintaining adequate enforcement mechanisms to ensure the professional behavior of their individual members.
SMO 1: Quality Assurance
In Japan, there are three bodies involved in conducting quality assurance (QA) reviews as per the Certified Public Accountants Act as amended in 2003: the Financial Services Agency (FSA), the Certified Public Accountants and Auditing Oversight Board (CPAAOB), and JICPA. All three organizations work together in order to implement the QA review system. JICPA assumes the responsibility of conducting the QA reviews through its Quality Control Review Team while its Quality Control Committee is responsible for developing quality control review standards and procedures, considering and approving quality control review reports, and deciding on issuing letters of recommendations. The CPAAOB may examine the reports submitted by JICPA and can also carry out on-site inspections as deemed necessary. If the CPAAOB inspection finds that the JICPA has conducted an insufficient quality control review, or that an audit firm’s quality control is insufficient and does not comply with laws and regulations, the CPAAOB may recommend the FSA to take relevant administrative measures. The JICPA reports that these QA review procedures meet the requirements of SMO 1.
As part of maintaining processes to support the operations of a QA review system that meets international best practices, JICPA states that it continuously revises their existing review program to ensure it addresses all SMO 1 requirements. JICPA’s Quality Control Standards and Auditing Standards Committees also revises and updates their standards and statements in order to incorporate changes. In addition, JICPA requires all firms that audit listed companies to register with their registration system for listed company audit firms and has recently enhanced its registration requirements. In the event that the firms do not have appropriate quality control systems, those firms or individuals may have been de-listed from the listed company audit firm registration system and are restricted from re-registering under certain circumstances until JICPA’s QA reviews acknowledge improvements in their practice and applicants for registration must earn certain continuing professional developments credits to engage in statutory audits. JICPA will then publish the list of approved and registered firms on its website along with an overview of the firms’ quality control system.
The institute reports that it carried out 101 QA reviews in 2016 and 96 in 2017 and publishes the results of the reviews in a Quality Control Review Annual Report which is widely disseminated online and in hardcopies in order to communicate and educate JICPA members on the importance and outcomes of QA reviews.
In order to further support members and support a wider understanding of QA reviews, JICPA has undertaken several educational activities. JICPA provides seminars on the quality control review system and courses on audit quality with examples of findings from reviews. Beginning March 2016, JICPA has required all members engaging in statutory audits to take fraud case study training seminars and has since offered over 30 courses for members. Finally, JICPA reports that it maintains communication and hosts seminars with relevant stakeholders and organizations (e.g. Japanese Audit and Supervisory Board Members Association and investors) to cultivate further understanding of quality control reviews conducted by JICPA.
SMO 2: International Education Standards
The Certified Public Accountants Act establishes the initial professional development (IPD) requirements for the profession. These include passing a CPA examination administered by the Certified Public Accountants and Auditing Oversight Board (CPAAOB), completing a professional accountancy education program provided by the JICPA and the Japan Foundation for Accounting Education and Learning, completing practical experience, and passing a final assessment offered by JICPA. The JICPA also establishes continuing professional development (CPD) requirements and offers an annual CPD curriculum that are regularly reviewed by its CPD Committee. The institute indicates that both IPD and CPD requirements are generally in line with the revised IES requirements.
JICPA outlines that it uses its best endeavors to incorporate the IES requirements into Japan’s national accountancy education requirements and notes that the implementation of IPD requirements especially are shared amongst several different stakeholders. For example, learning outcomes (contents of each subject) that are necessary to pass CPA examination are specifically identified by CPAAOB, which are publicly posted. The review process by CPAAOB is annually conducted. Learning outcomes (curriculum) of professional accountancy education in IPD are regularly reviewed by JICPA. Meanwhile, practical experience is generally evaluated by senior reviewers in audit firms.
The institute established a Technical Committee on IES in order to facilitate implementation of the IES in Japan. As part of this effort, the committee translates IES and IAESB pronouncements for publication on JICPA’s website, performs gap analyses, and engages with key stakeholders on the need to align educational programming and curricula with the revised IES requirements. The institute has implemented more output-based approaches for its CPD programming such as requiring short essays after self-studies, multiple choice tests after e-learnings, group discussion and presentations, and will also award CPD credit for writing articles or giving lectures. Furthermore, JICPA notes that its CPD curriculum was recently revised to highlight the expected learning outcomes for each course and include changes to standards and laws and new topics such as IT.
Additionally, JICPA also contributes to the international standard-setting process by nominating an IAESB member that is supported by a technical advisor and members of its Technical Committee on IES.
SMO 3: International Standards on Auditing
Auditing standards in Japan are set by the Business Accounting Council (BAC)—an entity operating under the auspices of the Financial Services Agency (FSA)—and are supplemented by Auditing Standard Committee Statements (ASCSs) and Quality Control Standards Committee Statement (QCSCS) issued by JICPA. The auditing standards issued by the BAC and ASCSs and QCSCS issued by the JICPA taken together comprise the GAAS in Japan. Companies that are subject to statutory audits in Japan are identified in the Financial Instruments and Exchange Act and the Companies Act. Statutory audits are also required for other specific types of entities in accordance with relevant laws or regulations. All audits adhere to the Japanese GAAS.
Since 2007, JICPA has been working to converge the Japanese GAAS with the ISA as issued by the IAASB. JICPA strives to regularly update its ASCSs and QCSCS statements in response to IAASB pronouncements. After the Clarity Project of the IAASB, JICPA redrafted all ASCSs and QCSCS based on the clarified ISA and ISQC 1. The GAAS are currently converged with the 2012 ISA. Regarding the new auditor’s report, the FSA had started discussions on adopting the revised auditor’s report after JICPA conducted a trial run for key audit matters (KAM) communication. On July 5 2018, the BAC issued “Opinion on the Revision of Auditing Standards” and revised BAC’s auditing standards to improve transparency in the auditor’s report which includes implementation of KAMs. JICPA will issue the exposure draft of new ASCS 701 and revisions of ASCSs relating to auditor reporting in October 2018. It will cover new auditor reporting standards except for ISA 720 (Revised) issued by IAASB in 2015.
JICPA is also working to revise relevant ASCSs in light of revision of ISA 610 (in 2012 and 2013) and revisions to address disclosure in the audit of financial statements (in 2015) issued by IAASB. The exposure draft is planned to be issued in the first quarter of 2019.
For other IAASB pronouncements, JICPA issued Auditing and Assurance Practice Committee Statement (AAPCS) 2400 in 2016, and AAPCS 3000 together with the Framework for Assurance Engagements in 2017. They are all based on ISRE 2400 (Revised), ISAE 3000 (Revised) and the amended International Framework for Assurance Engagements issued by IAASB with some additional requirements and application materials. Additionally, JICPA issued Professional Engagement Practice Statement 4400 in 2016 with a minor revision in 2018.
To support the implementation of applicable standards, JICPA issues practical guidance, carries out research, and holds training seminars when the BAC standards and/or AS statements are newly issued or revised. Most recently, it provided seminars in regards to auditor reporting including KAMs. JICPA requires all CPAs engaged in statutory audit to take training on quality control for audit engagements and case study about fraudulent financial reporting. JICPA also disseminates information on the latest activities of the IAASB through its website.
Lastly, JICPA also contributes to the standard-setting process and activities of the IAASB by providing a technical advisor from JICPA. Through its involvement with the IAASB, the institute reviews exposure drafts, and consultation papers, and provide comments on the materials.
Whenever feasible, JICPA is encouraged to continue its efforts to reduce the time lag in converging Japanese GAAS with the latest version of ISA.
SMO 4: Code of Ethics for Professional Accountants
In Japan, ethical rules for all Certified Public Accountants (CPAs) are defined in the CPA Act in addition to the JICPA Code of Ethics. JICPA has established an Ethics Committee which issues the JICPA Code of Ethics. JICPA indicates that its Code is regularly reviewed and revised in order to conform to the IESBA Code of Ethics such that in April 2018, the institute incorporated changes in order to meet the 2016 IESBA Code of Ethics except for section 360 (NOCLAR for public accountants in business). JICPA plans to adopt section 360 in 2019. In some cases, JICPA reports that some ethical requirements may be more stringent than that of the IESBA Code due to national legislation and the JICPA’s own Code of Ethics
As JICPA revises its Code of Ethics, the institute also updates its implementation guidance and checklists as well. These resources are available on its website in addition to a telephone service for its members to receive advice on ethical matters. JICPA also provides training seminars and courses on ethical topics and members engaged in professional services are required to earn two credits a year in professional ethics. Furthermore, JICPA also provides a professional ethics guidebook and portable booklet to all members to assist with the understanding professional ethics.
Lastly, JICPA is actively involved in the international standard-setting process having nominated a member to the IESBA and its vice chair of the Ethics Standards Committee and the chair of its Code of Ethics and Auditor Independence Working Group serve as a technical advisor. The institute notes that it supports outreach activities of the IESBA and meetings with key stakeholders along with disseminating information on exposure drafts for comments by its members.
SMO 5: International Public Sector Accounting Standards
The Ministry of Finance (MoF) of Japan is responsible for the development of public sector accounting standards for the central government while the Ministry of Internal Affairs and Communication (MIC) is responsible for accounting standards for local governments. In 2015, MIC released a public sector accounting manual for municipalities in order to promote the use of a single set of accounting standards for reporting financial information by local governments.
The national public sector accounting standards require financial statements to be prepared on an accrual basis but the national standards are not aligned with IPSAS. National standards are reviewed and revised regularly, and JICPA indicates that IPSAS are considered during the review process.
As JICPA does not have standard-setting authority for this area, the institute reports that it undertakes activities related to advocating for the adoption of IPSAS, raising awareness, and supporting members that work in the public sector to apply and implement applicable standards.
For example, JICPA states that it exchanges information and views on the latest programs of IPSASB with the Ministry of Finance, the MIC, and the Board of Audit on a regular basis. Meetings are held with the MoF and MIC every quarter following IPSASB meetings. Additionally, JICPA explains that when discussions are held by the MoF or the MIC in relation to public sector accounting standards, JICPA will nominate members to a MoF or MIC subcommittee. JICPA also tries to broaden the understanding and utilization of financial information by hosting seminars for local assemblymen. JICPA will also translate IPSAS into Japanese for wider dissemination. Most recently, in March 2018, JICPA translated IPSAS 40.
The institute has established a Public Sector Accounting and Auditing Practice Group which is providing training programs on public accounting work; planning necessary initiatives to improve the quality of work of members engaged in public sector accounting; and sharing information on related topics through articles. Lastly, JICPA actively supports the IPSASB’s standard-setting processes by providing a technical advisor for one of the board’s members, reviewing IPSASB materials, preparing comments for exposure drafts, and publishing summaries of IPSASB meetings on its website.
SMO 6: Investigation and Discipline
JICPA states that its I&D system meets the requirements of the revised SMO 6 as detailed below. For instance, it has incorporated both an “information-based” and “complaints-based” approaches to investigate potential misconduct of CPAs. Complaints, which may be collected by letter, e-mail, or fax, are generally referred to the Audit Practice and Review Committee which will then decide whether the case should be further pursued. If so, the case goes to the Investigative Committee. The Investigative Committee starts its own investigation as to whether there is any violation of laws and regulations, or breaches of the JICPA Constitution and Regulations, and determines whether to recommend sanctions to the Chairman and President. Based on the determination of the Investigative Committee, the Chairman and President request the Disciplinary Committee to review the case. The Disciplinary Committee examines the evidences and judges on sanctions to be imposed. The Financial Services Agency is authorized to take enforcement actions based on the results of investigations and/or the recommendations by JICPA as necessary. Members may appeal decisions to the institute’s Appeals Committee. All three committees include accountancy professionals along with individuals from other professions. Furthermore, JICPA has established an Audit Practice Monitoring Board to ensure the objectivity and transparency of JICPA's monitoring activities as related to the proper implementation and effectiveness of the investigative and disciplinary system.
Over the last year (April 2017–March 2018), the Audit Practice and Review Committee has reviewed 30 cases with 8 of them going forward to the Disciplinary Committee.
JICPA states that it has continued to revise and update its I&D system by revising relevant rules and regulations. Additionally, JICPA annually distributes relevant publications such as case example books to their members to improve audit practices and avoid cases of non-compliance.
SMO 7: International Financial Reporting Standards
In 2001, the Accounting Standards Board of Japan (ASBJ) was formed under the auspices of the Financial Accounting Standards Foundation. The ASBJ is responsible for the development and deliberation of accounting standards in Japan. All standards set by the ASBJ are still subject to the endorsement of the Financial Services Agency (FSA). For consolidated financial statements of listed companies, use of one of the following four sets of frameworks is permitted Japanese GAAP; ‘Designated IFRS’; Japan’s Modified International Standards (JMIS); and US GAAP. The Japanese government policy has continuously encouraged stakeholders to promote the voluntary adoption of IFRS since 2014.
As JICPA does not have standard-setting authority for this area, the institute reports that it undertakes activities related to promoting the voluntary adoption of IFRS, raising awareness, supporting members to apply and implement applicable standards, and participate in the international standard-setting processes.
For instance, JICPA reports that it participates in various technical committees and the IFRS Council initiated by key stakeholders, such as the FSA, Japan Business Federation, Tokyo Stock Exchange, and Securities Analysts Association of Japan, and will conduct research on challenges to adopting IFRS and experiences from other countries. The institute will also support the ASBJ’s standard-setting process by providing comments on exposure drafts and discussion papers as part its efforts to promote the voluntary adoption of IFRS. Furthermore, the institute has established its own IFRS Technical Committee with additional Working Groups that focus on the Endorsement of IFRS, and Technical Committee on ASAF and strive to facilitate discussion and exchange information with relevant stakeholders.
In addition to training offered by the Japan Foundation for Accounting Education and Learning, as part of its own educational offerings, JICPA organizes IFRS trainings and courses and maintains an IFRS advisory hotline for members’ inquiries. Additionally, the institute publishes an IFRS magazine every two weeks to keep members up-to-date on the latest developments and provides implementation publications and training material. Whereas previously the institute has organized framework-based workshops with the IFRS Foundation, now it organizes an annual an IFRS conference.
Lastly, the institute is also active at the regional and international levels to support the IASB’s standard-setting processes. JICPA cooperates with the IFRS Foundation Asia-Oceania Office to provide the IASB with a local presence in the Asia-Oceania region and support greater regional outreach. The institute also states that it circulates, reviews, and provides comments for IASB exposure drafts and discussion papers as well as public consultations regarding the governance and strategy of the IFRS Foundation.
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