Japan: Disclosure of corporate affairs

On January 31 2019, the Cabinet Office Order to Partially Amend the Cabinet Office Order on Disclosure of Corporate Affairs was issued by the Financial Services Agency. It was suggested that the original order be revised based on the recommendations made in the Financial System Council's 'disclosure working group report' announced in June 2018. Following is an outline of the revisions to be made:

Fruitful disclosure of business information in the annual securities report allows investors to make appropriate investment decisions. Therefore, the following revisions were made for the purpose of deepening investors' understanding of companies and improving the quality of corporate disclosures and transparency.

Companies must describe their management policies and strategies, including the executives' understanding of market conditions, competitive advantages, key products and services, and customer base.

Companies must specifically describe the major risks the executives recognise as having a substantial impact on management.

Regarding estimates for certain accounting items and the assumptions used for such estimates, companies must describe the executives' understanding in respect of any uncertainties and the impact of changes on operating results.

Companies must provide a detailed explanation of their compensation programmes (e.g., indicators of performance-linked compensation, policy on the ratio of performance-based versus non-performance-based compensation) and how compensation for performance is based on such programmes.

Regarding policy-based stockholdings (eg, cross holdings), companies must describe the methods for verifying the rationality of the stockholdings.

Knowledge of the details of accounting audits is important for investors to allow them to make appropriate decisions. In order to improve disclosure of accounting audit information, companies must disclose the activities of the Board of Corporate Auditors (e.g., frequency of meetings of the Board of Corporate Auditors, major considerations, and the frequency of attendance for each auditor), the duration of any audit conducted by outside audit firms, and so on.

Revisions to the 'Provision of Information to Promote Constructive Dialogue' must be applied in the annual securities report, and so on, for the fiscal year ending on or after March 31 2019. Other revisions must be applied in the annual securities report, and so on, for the fiscal year ending on or after March 31 2020.

Kenta Isshiki