Japanese Institute of Certified Public Accountants

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 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 (in 2022, JICPA revised SQMS No.1 "Quality Management for Firms", issued SQMS No.2 "Engagement Quality Review", and revised SAS 220 and other related SAS to adopt the quality management standards issued by IAASB) and procedures, considering and approving quality control review reports, and deciding on issuing recommendations for improvement reports. The CPAAOB may examine the reports submitted by JICPA and carry out on-site inspections as deemed necessary. If the CPAAOB inspection finds that 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 that the FSA takes relevant administrative measures. JICPA reports that these QA review procedures meet the requirements of SMO 1.

As part of maintaining processes to support the operations of a review system that meets international best practices, JICPA states that it continuously revises its existing review program to ensure it addresses all SMO 1 requirements. JICPA’s Quality Control Standards and Auditing Standards Committees also revise and update their standards and statements to incorporate changes.

Although JICPA has required all firms that audit listed companies to register with their review system since its establishment, the revised Certified Public Accountants Act that came into effect in April 2023 provided JICPA’s registration system with legal backing. If the firms do not have appropriate quality control systems, those firms or individuals may be deleted from the listed company auditors’ registration system and are not allowed to make any audit contracts with listed companies. JICPA will then publish the list of approved and registered firms on its website, along with an overview of the firm’s quality control system.

On an annual basis, JICPA publishes reports on the operational status of the quality assurance review mechanism annually and these reports are disseminated online and in print to communicate and educate the public on the importance and outcomes of QA reviews.

To further support members and deepen their understanding of QA review process, JICPA has undertaken several educational activities. JICPA provides seminars on the quality assurance review system and courses on audit quality with examples of findings from reviews. Lastly, JICPA reports that it maintains effective 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 the quality assurance reviews conducted by JICPA.

Current Status: Sustain

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 JICPA and the Japan Foundation for Accounting Education and Learning (JFAEL), completing practical experience, and passing a final assessment offered by JICPA. JICPA also establishes continuing professional development (CPD) requirements and offers an annual CPD curriculum that is regularly reviewed by its CPD Committee. In 2023, the institute indicates that both IPD and CPD requirements are generally in line with the latest IES requirements in effect.

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 requirements, IPD especially, is shared amongst several different stakeholders. For example, learning outcomes (contents of each subject) that are necessary to pass the 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 individuals in audit firms.

The institute established a Technical Committee on IES to facilitate the implementation of the IES in Japan. As part of this effort, the committee translates 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 latest 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 discussions, and presentations. It 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 ICT and sustainability.

Additionally, JICPA also contributes to the international standard-setting process by nominating an IPAE member that is supported by members of its Technical Committee on IES.

Current Status: Sustain

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 Statements on Auditing Standard (SAS) and Statements on Quality Management Standards (SQMS) issued by JICPA. The auditing standards issued by the BAC and SAS, and SQMS issued by the JICPA comprise the GAAS in Japan. All statutory audits are done using the Japanese GAAS.

Since first issuing SQMS and SAS, JICPA and BAC regularly revises its standards to stay converged with the standards and revisions as issued by the IAASB. For example, in November 2020, the BAC revised its audit standards to require a section on “other information” in auditor’s reports and to enhance a risk-based approach to auditing further. In 2021, the BAC issued “Opinion on the Revision of Quality Control Standards for Audits,” which was revised considering the ISQM 1, ISQM 2, and ISA 220 (Revised), which IAASB issued in December 2020. Subsequently, JICPA revised the related SAS and SQMS in June 2022. JICPA also revised the related SAS in January 2023 based on ISA 600 (Revised) issued by IAASB in April 2022.

To support the implementation of applicable standards, JICPA issues practical guidance, carries out research, and holds training seminars when the BAC standards and/or SAS statements are newly issued or revised. JICPA requires all CPAs engaged in statutory audits to take training on quality control for audit engagements and case studies about fraudulent financial reporting. JICPA also disseminates information on the latest activities of IAASB through its website.

Lastly, JICPA also contributes to the standard-setting process and activities of the IAASB by providing a board member and a technical advisor from JICPA. Through its involvement with the IAASB, the institute reviews exposure drafts and consultation paper and provides comments on the materials.

Current Status: Sustain

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 is aligned with the 2022 International Code of Ethics for Professional Accountants. In 2024, JICPA plans to adopt revisions to “the Definitions of Listed Entity and Public Interest Entity,” “the Definition of Engagement Team and Group Audits,” and “Technology”. JICPA reports that some ethical requirements may be more stringent than those 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 mail and telephone services 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 CPD credits a year related to professional ethics. Furthermore, JICPA also provides its members with a "Declaration of Ethics" mini card which declares that they will comply with the Code of Ethics.

Lastly, JICPA is actively involved in the international standard-setting process, with the vice chair of the Ethics Committee serving 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.

Current Status: Sustain

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. The national public sector accounting standards require financial statements to be prepared on an accrual basis but are not aligned with IPSAS.

As JICPA does not have standard-setting authority for this area, the institute 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 exchanges information and views on the latest developments of IPSASB with the MoF, MIC, and the Board of Audit on a regular basis. Meetings are held with the MoF and MIC every quarter following the IPSASB meetings. Additionally, when the MoF or MIC has discussions concerning public sector accounting standards, JICPA will nominate members to their subcommittee. JICPA works to broaden the understanding and utilization of financial information by hosting seminars for local assembly members. JICPA has translated the 2019 IPSASB Handbook and IFAC’s Train the Trainers IPSAS modules.

JICPA has established a special committee on local government accounting and auditing under the Council on Public Sector Accounting. The committee 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 board member and technical advisor, preparing comments for exposure drafts, and publishing summaries of IPSASB meetings on its website.

Current Status: Sustain

The Certified Public Accountants Act, as amended in 2003, authorizes JICPA to carry out investigative and disciplinary (I&D) procedures.

As of 2023, JICPA states that its I&D system meets the requirements of SMO 6. For instance, it has incorporated both an “information-based” and “complaint-based” approach to investigate potential misconduct of CPAs. Complaints, which may be collected by letter, e-mail, or fax, are generally referred to the Audit Practice Review and Investigatory Committee, which will then decide whether the case should be further pursued. If so, the Audit Practice Review and Investigatory Committee starts its investigation as to whether there is any violation of laws and regulations or breaches of the JICPA Constitution and Regulations. It determines whether to recommend sanctions to the Chairman and President. Based on the determination of the Audit Practice Review and Investigatory Committee, the Chairman and President request the Disciplinary Committee to review the case. The Disciplinary Committee examines the evidence and judges on sanctions to be imposed. The Financial Services Agency (FSA) 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 Review Board for Appropriate Procedures. All three committees include accountancy professionals along with individuals from other professions. Furthermore, JICPA has established the Self-Regulatory Monitoring Conference 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.

From April 2022–March 2023, the Audit Practice Review and Investigatory Committee has reviewed 18 cases, with 7 going forward to the Disciplinary Committee.

JICPA states that it has continued to update its I&D system by revising relevant rules and regulations. Additionally, JICPA annually provides relevant publications such as case example books to its members to improve audit practices and avoid cases of non-compliance.

Current Status: Sustain

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 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. Other public interest entities are not required to use IFRS. 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 of 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 Advisory Forum Accounting Standards (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 (JFAEL), 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 Accounting Standards 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.

Current Status: Sustain