ASBJ 31 Accounting Standard for Disclosure of Accounting Estimates

Conceptual Framework Linkage

Helping readers understand where next year's numbers could meaningfully change

ASBJ Statement No. 31 requires companies to DISCLOSE information about SIGNIFICANT accounting ESTIMATES made in the CURRENT year's financial statements that carry a genuine RISK of MATERIAL ADJUSTMENT in the FOLLOWING year – helping readers understand WHERE the financial statements are MOST sensitive to changes in JUDGEMENT or underlying assumptions, BEFORE such changes actually occur.

Scope

All companies with significant estimation uncertainty in their financial statements

This Statement applies to ALL companies whose financial statements INCLUDE accounting ESTIMATES carrying a genuine risk of MATERIAL adjustment WITHIN the next fiscal year – a genuinely BROAD scope, given how COMMONLY estimation is embedded throughout financial reporting.

Identifying Estimates With a Risk of Material Adjustment

A forward-looking risk assessment, not a backward-looking summary

Companies must IDENTIFY which SPECIFIC accounting estimates – for example, impairment assessments, actuarial assumptions, revenue variable consideration estimates, or deferred tax asset recoverability judgements – carry a genuine, FORWARD-LOOKING risk that a MATERIAL adjustment could be required in the NEXT fiscal year, based on how SENSITIVE the estimate is to changes in underlying ASSUMPTIONS or new INFORMATION.

What Must Be Disclosed for Each Identified Estimate

The nature, assumptions, and risk factors – not necessarily a full sensitivity analysis

For EACH identified SIGNIFICANT estimate, companies disclose: the NATURE of the estimate and WHY it carries estimation uncertainty; the METHOD and KEY assumptions used; and INFORMATION helping users understand the extent to which the estimate could CHANGE materially in the FOLLOWING year – WITHOUT necessarily requiring a FULL, quantitative sensitivity analysis in every case, reflecting the PRINCIPLES-BASED nature of this requirement (Section 5).

A Principles-Based, Not Overly Prescriptive, Requirement

Judgement-driven disclosure, tailored to each company's own circumstances

This Statement is DELIBERATELY principles-based – it does NOT PRESCRIBE a rigid, one-size-fits-all disclosure FORMAT or REQUIRE quantitative sensitivity ranges in every case. Instead, companies EXERCISE judgement in determining WHICH estimates warrant disclosure and WHAT specific information best conveys the NATURE and EXTENT of the risk to READERS, given their OWN particular circumstances.

Distinguishing This From Auditor-Reported Key Audit Matters

A management disclosure, not an auditor reporting requirement

This Statement's disclosure requirement is a MANAGEMENT disclosure OBLIGATION, appearing WITHIN the financial statement notes THEMSELVES – GENUINELY DISTINCT from "KEY AUDIT MATTERS" (KAM), which is a SEPARATE AUDITOR reporting requirement appearing in the AUDIT REPORT, reflecting the AUDITOR's OWN professional judgement about WHAT mattered MOST in the audit. Though the TWO concepts often OVERLAP in PRACTICE (an area of significant estimation uncertainty disclosed by MANAGEMENT under this Statement is often ALSO identified as a key audit matter by the AUDITOR), they serve GENUINELY different reporting PURPOSES and come from DIFFERENT reporting PARTIES.

Worked Example – Identifying a Significant Estimate

Recognising an estimate with genuine forward-looking risk

Example: A goodwill impairment assessment

A company carries ¥3,000,000,000 of goodwill relating to a business unit whose recent performance has been below plan, making the recoverable amount assessment highly sensitive to revised future cash flow projections.

The company IDENTIFIES this goodwill impairment ASSESSMENT as a SIGNIFICANT estimate carrying a genuine risk of MATERIAL adjustment in the NEXT fiscal year, warranting DISCLOSURE under this Statement.

Worked Example – the Resulting Disclosure

Conveying the nature and risk, without necessarily a full sensitivity table

Example: The disclosure note for the goodwill assessment

Continuing the prior example.

The company discloses: the ¥3,000,000,000 goodwill balance and the CASH-GENERATING UNIT it relates to; the KEY assumptions underlying the recoverable amount calculation (growth rates, discount rate); and a QUALITATIVE statement that a REASONABLY POSSIBLE change in these assumptions COULD result in a MATERIAL impairment being recognised in the NEXT fiscal year – giving readers a CLEAR sense of the RISK WITHOUT necessarily providing a full numeric sensitivity table.

Disclosure Requirements

What ASBJ Statement No. 31 requires

Identification of significant accounting estimates carrying a risk of material adjustment Nature of the estimate, key assumptions, and information conveying the extent of the risk

Critical Judgments

Where judgement matters most

SIGNIFICANT JUDGEMENTS

Which estimates genuinely carry a risk of material adjustment, warranting separate disclosure What level of detail (qualitative vs quantitative) best conveys the risk to readers

SIGNIFICANT ESTIMATES

This Statement is itself a disclosure requirement ABOUT estimates, rather than a measurement standard generating its own estimates

Relationship to IAS/IFRS

Comparison – J-GAAP vs IAS 1

Feature J-GAAP (ASBJ Statement No. 31) IFRS (IAS 1, paragraphs 125–133)

Disclosure objective Sources of estimation uncertainty carrying material adjustment risk Same objective – converged

Level of prescription Principles-based, judgement-driven Principles-based, judgement-driven – converged

This is another genuinely CONVERGED, current-standard-aligned area – reflecting the SAME broader international trend toward enhanced TRANSPARENCY around key judgemental areas of financial reporting.

Statement Mapping

Where every significant estimate disclosure lands

Event Statement(s) affected Notes

Significant estimate disclosure Notes only No effect on the primary financial statement figures themselves

Related Standards

Cross-reference map

Standard Connection

ASBJ Statement No. 24 Accounting Changes and Error Corrections – a related disclosure area addressing changes once they occur, complementing this Statement's forward-looking risk disclosure

Quick-Reference Glossary

Significant accounting estimate

An estimate in the current year's financial statements carrying a genuine risk of material adjustment in the following fiscal year.

Key Audit Matter (KAM)

A separate auditor reporting concept identifying matters of most significance in the audit, distinct from this Statement's management disclosure requirement, though often overlapping in practice.

Financial statement key (Japan GAAP terminology)

BS Balance Sheet (貸借対照表) P&L Statement of Income / Profit and Loss Statement (損益計算書) Net Assets 純資産の部 SCNA Statement of Changes in Net Assets (株主資本等変動計算書) SCF Statement of Cash Flows (キャッシュ・フロー計算書)