The objective of audits conducted by CPAs is to provide reasonable assurance that the financial statements prepared by an entity are fairly presented for a wide variety of users and other stakeholders. CPA audits are required under the Companies Act, Financial Instruments and Exchange Act (FIEA) and other acts and regulations, and they contribute to ensuring the reliability of the financial information provided by various entities.
Auditing standards generally accepted in Japan (Japanese GAAS)
CPA audits must be carried out in accordance with the auditing standards issued by the Business Accounting Council (BAC) of the Financial Services Agency, and Auditing Standards Committee Statements (ASCSs) and Quality Control Standards Committee Statements (QCSCS) issued by the JICPA. The auditing standards issued by the BAC and the ASCSs and QCSCS issued by the JICPA constitute Japanese GAAS.
The auditing standards issued by the BAC take a risk-based approach and are consistent with the clarified International Auditing Standards (ISAs) and International Standard on Quality Control 1 (ISQC 1). ASCSs and QCSCS also converge with clarified ISAs and ISQC 1.
- Revised Auditing Standards codified by the BAC (published on March 29, 2010) (available only in Japanese)(PDF/16P/264KB)
- English translation of the Auditing Standards codified by the BAC as of April 9, 2009* (PDF/14P/112KB)
- List of Auditing Standards Committee Statements(PDF/1P/7KB)
(*This is the English translation of the provisions before the revision in 2010.)
Audits conducted by CPAs
CPAs provide auditing services in the following areas.
Audits under the FIEA
Under the FIEA, certain listed companies and other specified entities are required to be audited by independent CPAs. CPAs issue three types of reports in audits under FIEA:
- Audit report on the financial statements for the current fiscal year.
Financial statements submitted must be audited by independent CPAs in accordance with the Japanese GAAS. The independent CPAs express their opinions in the audit report that the statements of financial position, performance results, and cash flows are fairly and faithfully presented from every material perspective.
- Review report of quarterly financial statements
The FIEA requires listed companies to submit quarterly financial statements, and those reports must be reviewed by independent CPAs.
- Audit report on the internal control report
The FIEA requires listed companies to prepare reports on their internal control and have those reports audited by independent CPAs. This requirement has been introduced in reference to the Article 404 of the Sarbanes Oxley Act in the US, but has been adjusted to take into account the specific requirements in Japan.
Audits under the Companies Act
Companies that must be audited by independent CPAs under the Companies Act are as follows;
- Companies with capital stock of ¥500 million or more, or total liabilities of ¥20 billion or more as of the latest fiscal year-end
- Companies that adopt a “Company with Committees” corporate governance system
- Other companies which appoint external auditors on a voluntary basis
Other Statutory Audits (Examples)
- incorporated private educational institutions that received subsidies from the central government or local governments
- labor unions
- certain large financial institutions
- incorporated Administrative Agencies
- local governments