Aoyama Sogo Accounting Firm

Innovation Speed Quality

NewsLetterC h a i r m a n ’ s

Vol.28 11/ 30/ 2023

C o l u m nMaking my first U.S. trip in a while
As a member firm of the global network Prime Global,
we attended this year’s world summit held in Miami on
November 5.
The network is more like an association than a groupof member firms. There are no requirements for capitalamount or business name for companies to be eligible.
Those with about 50 employees or more can getregistered. Since many mid-sized accounting firms are
not equipped to open an overseas office, member firms
can support each other in servicing clients who want toexpand overseas. Even during Covid, the network has
expanded its members to 310 locations across 112
countries. Asia is particularly growing with India now
having 10 member firms compared to Japan’s 4 firms.
Before this trip, I imagined the conference site,
Miami, Florida to be where retired Americans lived
comfortably in a year-round summer climate, but I
found out that it also has a significant homelesspopulation and that the area seemed rough.
Florida is also a gateway to the U.S. for many Latincountries, so there is a big population of Latin
immigrants as well.

The PG member firms who I had a conversation withseemed to view Japan as a country with low interest
rates and low growth.
The main topics among management were thechallenges of hiring and employee retention. I was able
to confirm that the labor shortage is a global issue aswell.

As a Japanese citizen, the most eye-opening part ofmy stay was the exorbitant prices. A hamburger andfries can cost $30, with drinks being separate. Using aVISA card for payment, the spot exchange rate was 150
yen per dollar and converted at 160 yen. Add 7% sales
tax and tips and it’s easy to see how expensive it gets.
Several of the accounting firms mentioned a recession,
so it’s understandable that eating out becomes difficult.

I was also under the impression that the mostadvanced countries were using generative AI for client
services and report preparation. However, it seemedmost firms were not using it. Many of the management
discussions were about how best to run the company
ecosystem which includes outsourcing work to cover forthe labor shortage. While the topics of client acquisitionand non-financial disclosure (ESG related) are important,they seem to be secondary concerns at the moment.

by Kazuhiro Matsuzawa, Chairman

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

NewsLetter
A S A

Vol.28 11/ 30/ 2023

N e w s[New office opening] Wakayama
prefecture
One of our goals is to facilitate a work environmentfor “whenever”, “wherever”, and “for anyone”. The
purpose is to implement a diverse workstyle accelerated
by Covid and to proactively address the labor shortagein our industry.
As mentioned in our previous newsletters, besides ourTokyo office, we now have satellite offices providing
services in Fukuoka, Kobe, and Wakayama. Wakayama
office is our newest addition located in the heart ofWakayama city’s business district, which is also close toWakayama Castle, giving it a historic feel.
Wakayama residents often move out to Osaka andnearby prefectures to find work, but hopefully ASAGroup can attract people to fund administration and bepart of solving regional city issues like the outflow ofresidents and city revitalization.
Until now, our satellite offices primarily performed tax
and accounting services, but our Wakayama office may
also handle bank account services. This is one part offortifying our business continuity management bymitigating risk in light of more frequent natural disasters
and unprecedented virus outbreaks.

The days of simply hiring experienced candidates issomewhat over and we must adopt a more diversifiedworkforce. Our Group has many full-time remoteworkers and improving our diversity at the moment. We
also understand the increasing importance ofcommunication and engagement within our teams andwith our clients.
As part of our mission to continue to contribute to an
active fund industry, we look to open additional officesthat become centers for people to get together, tocasually exchange information, and to revitalize regionalcities.
by Toshihiko Hatta, Management Strategy Group

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting FirmInnovation Speed Quality

NewsLetterJ a p a n

R e a lVol.28 11/ 30/ 2023

E s t a t e

Implied Cap Rate – Calculation andUse
The term “implied cap rate” is often seen on analysis
reports of public REITs. What is the implied cap rate?
Generally, cap rate is calculated as:
Cap Rate = Property income (NOI) /Property value
If the acquisition price-basis is used, property income isNOI actually generated from the property and property
value is the acquisition price.
If appraisal value-basis is used, property income is NOI
calculated by a real estate appraiser and property value
is the appraisal value calculated by the appraiser (Inpractice, the cap rate is sometimes determined before
appraisal value is calculated.)
Implied cap rate is calculated as expected future
income (NOI) divided by property value based onmarket cap of the REIT.

As one measure of the capital markets, the implied
cap rate is essentially a barometer for how investors
view property value.
Generally, the implied cap rate which is based on
capital markets is said to be lower than the property
acquisition-basis cap rate since the former has higher
liquidity. Depending on capital market conditions, thereverse may occur, but generally the REIT must acquire
property at a cap rate higher than the implied cap rate,otherwise the share price will drop, which makes fundraising through capital markets difficult.
Additionally, the spread between the implied cap rate
and acquisition-basis cap rate tends to be higher for
lower volatility assets (residential, logistics) than higher
volatility assets (office, hotel).
Since the implied cap rate moves before changes in
the cap rate of actual property, it is one measure thatpredicts the real estate market in large part dictated by
the transaction of REITs.
by Shigeru Hirai, Client Relations GroupⒸDbox for Mori Building Co.
Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

NewsLetter
U . S .

Vol.28 11/ 30/ 2023

N e w sU.S. Economy Snapshot

by Yuichi Totani, Client Relations Group※ OCTOBER 2023 figures, unless otherwise noted.
Jobs Report• Nonfarm Payroll 150,000 ↑(dramatic drop from Sept.
gain of 297,000)• Unemployment rate 3.9%
(Highest since Jan.)• Avg pay 0.2% ↑ (up 4.2%YOY)

CPI• 0.4% ↑ (annual 3.7%)• Core CPI 0.3% ↑Much of inflation attributed torise in housing costs

10-year Treasury• Yield ～4.5% (as of Nov. 8)
Yields have dipped since thelast Fed meeting which kept
rates steady.

Annualized Inflation rate 3.6%
(in Sept.)30-year Fixed Rate Mortgage• 7.76% (as of Nov. 2)
7 week low but remains high.
Fewer mortgage applications aswell.

GDP
4.9% annualized at end of 3Q

Federal Reserve Watch
Inflation rate remains high after a strong jobs report in September and high consumer spending.
However, the October report showed considerable slowing in new jobs added. There is also expected
to be headwinds for the economy as borrowing costs are still high, and Covid savings will begin todeplete.
On November 1, the Fed kept the central bank rates steady for a second consecutive meeting. TheS&P500 and Nasdaq has each climbed by roughly 3% since. The 10-year Treasury yield has dipped toabout 4.5% as of November 8.
Economists and analysts still seem unclear whether the economy is headed towards recession or a softlanding (where inflation falls, but unemployment rates are kept in check.)

Sara Cultural Centre (Photo: Jonas Westling)
Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

NewsLetterJ a p a n

Ta x

Vol.28 11/ 30/ 2023

U p d a t eTreatment of Invoices for Businesstrip expenses
The invoice system officially began on October 1.
Many businesses were seemingly well prepared but
once implemented, I notice many errors daily whenchecking qualified and nonqualified invoices andreceipts. In this volume, I will explain about the mostfrequently asked topic of “employee business trip
expenses (transportation and accommodations).”
As mentioned briefly in last month’s newsletter,article 9 of the law states “exemptions regardless ofentity size that allow purchase tax credits without theretention of qualified invoices.” Within Article 9,business trip expenses will typically fall under either ①
Public transportation (shipping vessel, bus, or railway) of
passengers costing less than 30,000 yen for which
qualified invoice issuance is exempted ② Transactions
that involve collected entry tickets and such that include
descriptions required for simplified qualified invoices(excludes those that qualify as ①), and ⑨ Distributions
to employees deemed necessary as ordinary businesstrip expenses and such(business travel,
accommodations, daily allowance and commutingallowance).
To put simply, if the expense is (a) paid/settled by thecompany or corporation under its own company name(through petty cash or credit card under the company

name), then either ① or ② above applies. If theexpense is (b) clearly paid/settled by the employee on
behalf of the company under the name of the employee(through the employee’s cash on hand or personalcredit card), ⑨ above will likely apply.
For example, if railway tickets 30,000 yen or more are(a) purchased under company name will require an
invoice, while if (b) employee pays under their name on
behalf of the company, the invoice is unnecessary.
Additionally, if ⑨ employees pay on behalf, there are
no requirements such as “public transportation” or“under 30,000 yen”, and applicable if it falls under thebroad interpretation of “ordinary and necessary
business trip expenses (business travel,accommodations, daily allowance, and commutingallowance).” The specific interpretation is stated in part
under the Income Tax Act (Basic Notice of Income Tax
Act 9-3).
Because the invoice system is a completely new
system in Japan’s tax assessment history, the tax
agency’s enforcement policy and standard practice fortransactions are still not concrete. This will likely
necessitate follow-up explanations to address the stateof reforms, guidelines, and standard practice fortransactions.

by Masaaki Kidokoro, Tax Consulting Group

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

NewsLetterE d i t o r ’ s

Vol.28 11/ 30/ 2023

A f t e r w o r dAs explained in our Chairman’s column, our firm ispart of Prime Global, a global alliance of accountingfirms. One of the biggest challenges for many of thesefirms is employee recruitment and training. In the past,
it was said that everything that happens in Japan had
occurred in the U.S. about 3 to 5 years prior. However,
although politics and culture may differ by country,
Covid has undoubtedly changed technologies andeconomies in similar ways.
For one, the workforce of the future will need toevolve with the times and adopt new technologies.
Similarly, it goes without saying that organizations musthave management and systems in place to train such
personnel.
by Jun Murata, Corporate Officer

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.