Financial Statements, etc. to be Prepared by Kabushiki-Kaisha

Preparation of a Financial Statements is a legal requirement for all Japanese Kabushiki-Kaisha (Joint-Stock Company). The person responsible for the preparation of such documents under the Companies Act is Directors (including accounting counsel, if any). Therefore, it is vital to understand what kind of documents you need to or ask other professionals to prepare.

Financial Statements

Financial Statements are the accounting information prepared to show the status of the company’s assets and profit and loss for each fiscal year. It includes the following documents.

1. Balance Sheet
2. Profit and Loss Statement
3. Statements of Changes in Net Assets: It shows changes in net assets during the fiscal year. The content to be included are stated in Article 96 of the Regulation on Corporate Accounting.
4. Tables of Explanatory Notes: It shows the status of the company and notes about the accounting corporation. The content to be included are stated in Article 97 on Corporate Accounting.

*Kabushiki-Kaisha that are mandatory to prepare Stock Company Consolidated Financial Statements (in accordance with Japanese accounting standards) are a Large Company that are obligated to submit annual securities reports in accordance with Article 24 of the Financial Instruments and Exchange Act. Companies with independent Auditors may prepare these documents on a voluntary basis.

Business Report

The Business Report is a document that discloses a variety of information, including important matters regarding the status of the company, current issues facing the company, and changes in sales for the past three fiscal years.

Annexed Detailed Statements

Annexed Detailed Statements is a document that supplement the Financial Statements and business report with essential information. The contents to include in the document are stated in Article 117 of the Regulation on Corporate Accounting for Financial Statements and Article 128 of the Regulations for Enforcement of the Companies Act for the Business Reports.

Audit of Financial Statements, etc.

Directors shall submit the Financial Statements and Business Report, etc. they have prepared to the general meeting of shareholders and shall report on the contents of the Business Report, and have the Financial Statements approved. (In the case of a company with a Board of Directors, an Auditors, and Accounting Auditors, only reports are required for both documents.) The Financial Statements are finalized upon this approval.

The process leading up to the approval vary depending on the organizational structure of the company.

In the case of a company without a Board of Directors (except for a company having Auditors voluntary)

1. End of the fiscal year
2. Preparation of Financial Statements, Business Report, etc.
+ Decision to convene an ordinary general meeting of shareholders
3. Sending of notice of convocation of an ordinary general meeting of shareholders
4. Reporting and approval at the ordinary general meeting of shareholders

In the case of a company with a Board of Directors (with Auditors)

i. End of the business year
ii. Preparation of Financial Statements, Business Report, etc.
iii. Audit of above (ii) by Auditors
iv. Notification of the Audit Report to the Directors*
v. Approval of Financial Statements and Business Report, etc. by the Board of Directors
+Decision to convene an ordinary general meeting of shareholders
vi. Sending of notice of convocation of an ordinary general meeting of shareholders (including Financial Statements, Business Report, Audit Report, etc.)
vii. Reporting and approval at the ordinary general meeting of shareholders

*Due date for notification is the later of the following:
(a) Four weeks from the date of receipt of the Business Report by the corporate Auditors
(b) One week from the date of receipt of the Business Report and Annexed Detailed Statements by the Auditors
(c) The date agreed upon between the specified Directors and the specified Auditors

Retention of Financial Statements, etc.

Financial Statements, Business Report (including Audit Reports, etc.) and other documents shall be kept at the head office for five years from one week (two weeks in the case of a company with a Board of Directors) prior to the ordinary general meeting of shareholders.

In addition, accounting books and other important materials related to the business shall be kept for 10 years from the time the accounting books are closed (the date when the books are closed in the settlement of accounts).

Public Notice of Financial Statements

All Kabushiki-Kaisha are required to publish a “Balance Sheet” without delay after the conclusion of the ordinary general meeting of shareholders. (In the case of Large Companies, the “Balance Sheet” and “Profit and Loss Statement” are to be publicly announced. (This excludes listed companies and other companies that are obligated to file annual securities reports.)

If the method of public notice stipulated in the Articles of Incorporation is

(1) the official gazette
(2) a daily newspaper

it is sufficient to give a public notice of the Balance Sheet summary.

If the method is (3) electronic public notice (website), the full content of Balance Sheet must be posted continuously for a period of five years after the conclusion of the ordinary general meeting of shareholders.

MK @ 07/24/2022