How does a company in Japan (subsidiary company), a branch office in Japan (branch office), and a representative office carry out their preparation of financial statements?
★ Explanation ★
For a subsidiary company, terms of its business location are under the Japanese law, its parent company (foreign company) is considered a separate business entity. As a result, there is a need for the subsidiary company to prepare their financial statements according to Japanese law. There are also cases where the parent company (foreign company) requests for a few necessary information in preparing their consolidated financial statement. In such cases, reclassification can be done by the parent company (foreign company) in accordance with reporting standards such as those set forth in US GAAP and IFRS.
For branch offices, interoffice accounting with the head office in the foreign country must be done. The financial statement for the branch offices are done separately and is later consolidated at the foreign company’s head office. Similar to the subsidiary company, reclassification may be done in accordance with reporting standards such as those set forth in US GAAP and IFRS.
Since a representative office cannot conduct sales activity in Japan, basically there are only expenses outlay. Since it is assumed that there would be no transactions that will be subjected to corporate tax, the representative office would report its financial situation to its head office through recording its expenses in foreign currency (converted from Japanese yen) and posting it on the accounting books.