(ENGLISH TRANSLATION FOR INFORMATION PURPOSES ONLY)

Summary of the Discussions at the 429th Board Meeting Held on April 9, 2020
Accounting Standards Board of Japan

Incorporating the Effects of the Novel Coronavirus Pandemic
when Making Accounting Estimates under Japanese GAAP
Various accounting estimates, including the impairment of property, plant and equipment and thecollectability of deferred tax assets, are required in preparing financial statements. Japanese GAAP
defines accounting estimates as “determining the reasonable amount based on all available
information… in cases where uncertainty exists in the amount of the asset, liability, income andexpense”1.
The novel coronavirus pandemic is an event that has far-reaching effects on the economy andbusiness activities. Because it is difficult to predict how this pandemic will develop in the future andwhen it will be brought under control, it has become extremely difficult to make accounting estimates,
particularly to predict future cash flows. In this situation, it is necessary to note the following points:(1) When “determining the reasonable amount based on all available information”, it isnecessary to develop the best estimates after making certain assumptions, even though
there may be high uncertainty in the event. Such event with high uncertainty includes
the novel coronavirus pandemic.
(2) In making the certain assumptions, it is desirable to use objective information based on
external sources to the extent possible. However, in the context of the effects of thenovel coronavirus pandemic, there is no precedent that can be used for reference to makeaccounting estimates, and there is no uniform view as to how the pandemic will develop
in the future and when it will be brought under control. Accordingly, in most cases,
objective information based on external sources will not be available. In this situation,
for the effects of the novel coronavirus pandemic, an entity will need to make the certain
assumptions on its own, including how the pandemic will develop in the future and when
it will be brought under control.
(3) Unless the certain assumptions made by the entity is clearly unreasonable, estimatedamounts as a result of developing the best estimates would not be considered “errors”2,
1

ASBJ Statement No. 24, Disclosures of Accounting Policies, Accounting Changes and Error
Corrections, paragraph 4(3).
2“Errors” are errors resulting from not using information that was available or from misusing
information that was available, regardless of whether the underlying actions were intentional or not.
“Errors” include errors in accounting estimates resulting from failing to identify facts or
misunderstanding facts. (Accounting Statement
No. 24, paragraph 4(8)).

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even when the estimated amounts turn out to be different from the subsequent results3.
(4) The certain assumptions made regarding the effects of the novel coronavirus pandemic
when developing the best estimates may differ among entities and, accordingly, theamounts estimated under identical conditions may differ. For accounting estimates madein these circumstances, it is necessary to specifically disclose information that enables
users of financial statements to understand the assumptions that were made to make theaccounting estimates. If such information is material, entities shall disclose “additionalinformation” as required by the Ordinance on Financial Statements4.
(End of Document)

3This statement is made in reference to paragraph 55 of ASBJ Standard No. 24, which states:“... if best estimates were developed based on information that was available ... differences
arising from changes in accounting estimates due to changes in circumstances during theperiod or differences between the estimated amounts and the actual amounts when theresults are finalized ... are recognized in the income statement for the period the changes incircumstances occurred or the period the results were finalized ...”
4Article 8-5 of the Ordinance on Financial Statements states, “In addition to the specific note
disclosures that are required under this Ordinance, if there are items that are considered necessary forinterested parties to make appropriate judgements regarding the company’s financial position,financial performance and cash flows, such items shall be disclosed in the notes”.