Auditing System

CPA audits must be conducted in accordance with the Auditing Standards codified by the Business Accounting Council (BAC) and with the implementation guidance (Auditing Standards Committee Statements) issued by JICPA. The Auditing Standards codified by the BAC together with the implementation guidance issued by JICPA are deemed to be the generally accepted auditing standards (GAAS) in Japan.

• The Auditing Standards codified by the BAC
• List of Auditing Standards Committee Statements(PDF/2P/40KB)

In Japan, CPAs provide audit services in the following areas:

Companies that must be audited by independent CPAs under the Financial Instruments and Exchange Act (FIEA) are follows:

• companies that issue shares listed on a financial instruments exchange or are in the process of listing;
• companies that filed a registration statement; and
• companies with a specified number of shareholders.

(1) Audit requirements under the FIEA

Filed financial statements must be audited by an independent CPA in accordance with Japanese GAAS. An independent auditor's report expresses an opinion as to the fairness of the presentation of the company's results of operations, financial position, and its cash flow, in accordance with the generally accepted accounting principles (GAAP) in Japan.

(2) Review of quarterly financial statements

The FIEA requires listed companies to submit quarterly reports. Additionally, quarterly financial statements included in the quarterly reports need to be reviewed by an independent CPA.

(3) Audit on internal control over financial reporting

The FIEA requires listed companies to prepare an Internal Control Report and to have it audited. This requirement is modeled after the one provided by Section 404 of the Sarbanes-Oxley Act, though with modifications in consideration of the experiences in the U.S.

• On the Setting of the Standards and Practice Standards for Management Assessment and Audit concerning Internal Control Over Financial Reporting (Council Opinions)(PDF/134P/690KB)
• Auditing and Assurance Practice Committee Statement No.82 “Practical Guidance for Audits of Internal Control over Financial Reporting” (October 24, 2007)(PDF/85P/324KB)

Companies that must be audited by an independent CPA under the Companies Act are as follows:

• Large companies : Capital stock of ¥500 million or more, or liabilities of ¥20 billion or more, as of the latest fiscal year-end;
• companies which adopt a “Company with Committees” corporate governance system; and
• other companies which appoint an accounting auditors (kaikeikansanin) on a voluntary basis.

• Private schools receiving subsidy from national or local government
• Labor unions
• Political party's subsidy report prepared in accordance with the Political Party Grant Law.
• Mutual insurance associations
• Credit banks and credit cooperatives
• Labor banks and other specified financial institutions
• Special-purpose companies
• Investment corporations
• Independent administrative corporations
• National universities
• Local governments

• Religious organizations, non-profit organizations, consumers cooperatives, and healthcare organizations
• Audits in connection with mergers, business transfers, and acquisitions
• Other audits not covered above