FASF to retain regular goodwill amortization, drops opt-in plan

2026-07-21

Current standard kept

FASF has decided to retain the current standard of regularly expensing goodwill arising from corporate M&A. It will not introduce an option allowing companies to choose between amortization and non-amortization. The decision will be made at an advisory meeting on the 27th.

FASF spent about a year debating the issue based on expert views, but support for introducing non-amortization did not spread. Japan will continue to take a different position from IFRS and U.S. accounting standards, which treat goodwill as non-amortized.

Goodwill refers to the amount paid above the acquired company's net assets and is considered compensation for intangible assets such as brands and technology. Under Japanese standards, based on the view that goodwill declines in value over time, periodic amortization within 20 years has been the rule. Continuing amortization weighs on profit each period, but even if the acquired business deteriorates, the risk of being forced into a sudden large impairment is easier to contain.

Impairment risk and comparability

On the other hand, non-amortization would reduce annual expenses, but it could also lead to large impairment losses if value declines. Under IFRS and U.S. standards, companies conduct one impairment test a year to decide whether impairment charges are needed.

Analysis of the financial statements of major companies in the U.S., Europe and Japan showed that the median size of goodwill relative to shareholders' equity was 20% to 30% in the U.S. and Europe, while in Japan it stood at just 1%. In the U.S., 16% of companies had ratios above 100%. FASF is seen as having decided against adopting non-amortization in light of these financial risks.

About 3,600 listed companies use Japanese standards, and changing the standard would require enormous time and cost. FASF appears to have concluded that the benefits of changing the system were not sufficient to justify the expense.

Expanded disclosure and company choice

Regular amortization has also drawn criticism that the more aggressively a company pursues M&A, the smaller its profits appear. Keizai Doyukai has argued that goodwill amortization could become an obstacle to M&A. If differences in accounting standards change the way profits appear, investors find it harder to compare Japanese companies with U.S. and European peers on the same basis, and stock prices are less likely to reflect corporate value.

To ease these issues, FASF will ask its Accounting Standards Board of Japan, or ASBJ, to consider disclosing 'profit before goodwill amortization' in financial statements. If this disclosure becomes more widespread, comparison with companies using other accounting standards should become easier.

Japanese companies that want goodwill to be non-amortized also have the option of adopting IFRS. As of the end of June, 315 companies listed on the Tokyo Stock Exchange had either adopted IFRS or decided to do so. Going forward, firms that prioritize growth through M&A are likely to move toward IFRS, while those that place more weight on financial risk are likely to remain with Japanese standards.

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