From the fiscal year beginning after April 1 2008, a statutory quarterly reporting system, as prescribed by the Financial Instrument and Exchange Law (FIEL), will be implemented. Now a quarterly disclosure system for listed companies, based on the stock exchange requirements, exists, but the introduction of a statutory system will make quarterly disclosures a mandatory requirement under FIEL, and attempt to ensure timely and prompt disclosure of financial and corporate information more appropriately.
Under the statutory quarterly reporting system, in principle, listed companies and OTC companies are required to submit a quarterly report to the prime minister within 45 days of each quarterly fiscal period. Those companies that fail to submit reports or make false statements on a material part of a report will be subject to criminal penalties. The companies will not be required to submit a quarterly report for the fourth quarter, assuming they submit their annual securities report instead. Also, the companies will not be required to submit their semi-annual securities reports for the second quarter, as they will submit a quarterly report instead. To ensure adequate disclosure of financial and corporate information, the contents required to be described in each quarterly report will be the same as the semi-annual securities report, but at the same time, for the purpose of enabling prompt and timely disclosure, some simplified descriptions are allowed in the quarterly report. For instance, required financial statements are limited to consolidated financial statements, unless the companies are running specific businesses, such as banking or insurance. Moreover, some sections ordinarily not addressed in quarterly reports, such as 'nature of the business', 'state of affiliated companies', 'state of employees', 'material contracts relating to management', and 'statement of facilities,' are required to be described if any material changes from the previous term have occurred. Furthermore, the 'major shareholder' section is only required in the second quarter of each fiscal year.
The introduction of a statutory quarterly reporting system will also have an impact on audits. Under the stock exchange requirements, the accounting standards of quarterly financial statements are not unified among exchanges, and in general no audit of quarterly reports is required. The statutory quarterly reporting system will unify such accounting standards and require that the companies conduct an audit by a CPA or auditing firm in connection with each quarterly report. On March 14 2007, the Accounting Standards Board of Japan (ASBJ) issued its "Accounting Standard for Quarterly Financial Report" and implementation guidance. In addition, in 2007 a number of Cabinet Office ordinances concerning accounting standards on quarterly financial statements were published, and they will be implemented at the same time that the statutory quarterly reporting system is introduced. For the purpose of prompt and timely disclosure, these standards and ordinances introduce some simplified accounting procedures, and the required level of certification by an auditor is not as high as that for the semi-annual securities report (so the audit of quarterly financial statements is generally called a review).
Foreign companies are also subject to the statutory quarterly reporting system if they are listed companies or OTC companies, and the procedures for submitting reports is the same as that for domestic companies. As from the day specified by cabinet order as between April 1 2008 and March 31 2009, foreign companies will be allowed to submit an English-language quarterly report that they have disclosed in their country, instead of submitting a Japanese quarterly report. Even if foreign companies are allowed to submit an English report, they will still be required to attach to the report summaries of the English report, descriptions required in their Japanese quarterly report that are not included in the English report, and so on, in Japanese.