Research Project on the Design for the Optimum Disclosure System Volume 4: Reinforcing audit quality through considering implications of evolving nature of IFRS

In Japan, the consolidated financial statements that are prepared in accordance with IFRS are permitted for those public companies that voluntarily apply IFRS from the fiscal year ending March 31, 2010. The issue of compulsory application to IFRS by public companies, as defined in the law, is to be judged and decided in 2012. Major characteristics of IFRS, among other things, are principles-based standards requiring the exercise of judgment of accounting standards and minimum application guidance, and are based on fair value accounting methods, including the application of present value that is derived by using future cash flow estimates. These factors involve extensive accounting estimates, complex assumptions, and uncertainty, all to be determined by enterprise management.

Under these conditions, we discuss the framework of audit quality, which underlies the IFRS audit, as well as some other issues to be considered for the IFRS audit, such as audit judgment, fair value and auditability, as well as the global enforcement mechanism.