Japan Finds Guaranteed Way to Ensure No Negative Quarterly Reports

The Japanese government is debating two business laws to reduce listed companies' reporting burden and speed up startup public offerings.

Listed companies would no longer have to file quarterly reports with corporate and financial information under the Financial Instruments and Exchange Act overhaul being proposed in the extraordinary session. The upper house Financial Affairs Committee backed the bill, suggesting it will pass.

Starting in April, financial statements would replace quarterly reports for the first and third quarters of the fiscal year. Listed companies would have to issue semiannual reports, like non-listed companies do. First-half reports are expected to be similar to second-quarter reports.

Quarterly reports overlap with financial statements, making them unnecessary. The change simplifies public company disclosures. Japanese Prime Minister Fumio Kishida's "new capitalism" program included the idea. According to the proposed modification, quarterly reports for the first and third quarters of the fiscal year would be abolished beginning in April, with the material summarized in financial statements. Listed firms would be forced to produce semiannual reports, which have long been required of non-listed corporations.

Semiannual reports' public access time would be extended from three to five years due to their greater importance. The inspection time for extraordinary reports issued when serious issues develop in a firm, such as changes in representative directors, would be increased from one year to five years.

The annual securities report, a detailed document that listed firms must present to relevant authorities, shareholders, and the public, is a critical element of Japan's reporting requirements. This report contains complete financial statements, management discussions and analysis, and other relevant information, giving stakeholders a comprehensive picture of the company's performance and future. International Financial Reporting Standards (IFRS) or Japanese Generally Accepted Accounting Principles (GAAP) are used to prepare these financial statements.

Japan requires the disclosure of CEO compensation, related-party transactions, and other governance-related topics in order to improve corporate governance and protect shareholder interests. This information promotes transparency and assists investors in making informed investment decisions.

The Tokyo Stock Exchange is critical in enforcing reporting obligations by checking compliance and implementing penalties for noncompliance. Through its timely disclosure mechanism, the exchange also provides a venue for corporations to release information to the public.

A suggested legislation amendment to reduce the time it takes for startup businesses to go public is also being discussed by lawmakers. The existing law sets a one-month quiet period between approval and listing to accommodate financial institution documentation and shareholder communications.

An extended pre-listing period exposes investors to market volatility concerns, which may cause offer prices to be reduced in anticipation of such risk.