Understanding Accounting Standards: JGAAP vs IFRS vs US-GAAP
Learn how JGAAP, IFRS, and US-GAAP differ and why it matters when comparing companies and analyzing financial statements.
InvestTracker
3 min read
会計基準入門
Table of Contents
What you'll learn
The role of accounting standards and why multiple sets exist
Key differences among JGAAP, IFRS, and US-GAAP in plain language
A simple example of how the same business looks different under each standard
How to compare companies that report under different rules
Concept explanation
Accounting standards are rulebooks for how companies write their financial story. Think of them like different measurement systems. One uses centimeters, another inches. The object is the same, but the numbers you see can differ. For investors, this means profits, assets, and debt may look different even if the real business is unchanged.
Three big sets matter to many investors:
JGAAP: Japanese rules, often more prescriptive, historically conservative in areas like revenue and impairments.
IFRS: Used globally. Principles-based, giving companies more judgment, especially for fair value and recognizing revenue and leases.
US-GAAP: US rules, detailed and rules-based, with extensive guidance and disclosures.
Different rules can shift revenue timing, expense timing, and what counts as an asset or a liability. Always read the notes.
Calculation method (with specific numbers)
Imagine a software company sells a 2-year subscription with setup services for 1,200 total. Cash is received upfront.
Under IFRS: If setup has no standalone value, most revenue is spread over the service period. Revenue recognized per year: 600. If setup is distinct and valued at 200, year 1 might show 800, year 2 shows 400.
Under US-GAAP: Similar principles, but the detailed rules for identifying performance obligations and estimating standalone prices can push slightly different splits. For example, setup valued at 250 could lead to year 1: 850, year 2: 350.
Under JGAAP: Depending on policy and guidance used, older practices might defer more or less of setup. For instance, if setup is largely expensed or recognized when completed, year 1 could be 900, year 2: 300.
Result: Same cash, different revenue timing. Profit follows revenue, so operating margin will also differ by year.
Another example: Leases
IFRS: Most leases go on the balance sheet as a right-of-use asset and a lease liability, increasing both assets and debt-like items.
US-GAAP: Also places most leases on-balance-sheet, but expense patterns can differ.
JGAAP: Historically more off-balance treatments; companies transitioning may show jumps in assets and liabilities.
Practical applications
When comparing companies across markets, adjust for timing. Look at multi-year trends rather than a single year.
Use non-GAAP and IFRS alternative performance measures with caution; definitions vary. Cross-check with cash flow from operations.
Read footnotes on revenue recognition, leases, goodwill, and inventory methods. These sections explain why numbers differ.
For debt ratios, consider lease liabilities and how each standard treats them. Recalculate net debt if needed.
For valuation, favor metrics less sensitive to timing differences, such as free cash flow over a multi-year average.
Common misconceptions
よくある誤解
- Profit is universal: "Net income is the same everywhere." In reality, timing and classification rules can shift it.
- Cash flow is identical: Operating vs financing cash flows can move across categories, especially with leases.
- IFRS and US-GAAP are interchangeable: They are closer than before but still differ in details that matter.
Summary
まとめ
- Standards are measurement systems; the business may be the same while numbers differ.
- JGAAP, IFRS, and US-GAAP vary in revenue timing, leases, and fair value use.
- Compare over several years and read notes on key policies.
- Favor robust metrics like multi-year free cash flow and adjust for leases.
- Always verify definitions of non-GAAP or alternative measures.
Glossary
JGAAP: Japanese Generally Accepted Accounting Principles, the accounting rules used in Japan.
IFRS: International Financial Reporting Standards, principles-based rules used in many countries.
US-GAAP: United States Generally Accepted Accounting Principles, detailed US accounting rules.
Revenue recognition: Rules that decide when and how sales are recorded.
Lease accounting: How companies record leased assets and related obligations on financial statements.
Goodwill: An asset that arises in acquisitions when purchase price exceeds the fair value of net identifiable assets.
