Financial Instruments and Exchange Law
On June 14, 2006, Japan legislated the Financial Instruments and Exchange Law, affectionately known as J-SOX, which became effective on April 1, 2008. Inspired by corporate scandals such as the Kanebo, Livedoor, and Murakami Fund episodes, the law has been dubbed "the Japanese version of the Sarbanes-Oxley Act," hence the title J-SOX. Although, observers say Japan has been taking its cues from financial rules in the United Kingdom, and the it is equivalent to the 1986 version of the Financial Services Act there.
The Internal Control Committee of the Business Accounting Council of the Japanese Financial Services Agency provided final Implementation Guidance for Management Assessment and Audit of Internal Controls over Financial Reporting (ICFR) in February 2007. The Implementation Guidance provides details to Japanese companies on how to implement a Management Assessment of Internal Control over Financial Reporting as required under the Financial Instruments and Exchange Law.
The Financial Instruments and Exchange Law became effective in April 1, 2008 for approximately 3,800 companies listed in Japan, along with their foreign subsidiaries.
Forrester Research lists the following challenges and difference between J-SOX and SOX:
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Professional services. Japan has fewer than 10% of the number of qualified accountants than the US. |
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Independence of auditors. While the concept of auditor independence exists in the Japanese market similar to the US, many Japanese firms can and will rely on the influence and recommendations of their audit firms. |
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Audit automation is critical. With the extreme shortage of auditors compared to US per capita numbers, this shortage will increase the requirement and necessity for process efficiency in the internal audit process and software that can support these processes. |
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Support of IT governance. In the November guidance regarding the scope of the J-SOX process, it is clear that IT controls are a central point of focus for J-SOX |
