Written report

Toyota Motors’ Report 6


Toyota Motors’ Report

Toyota Motor Corporation is an automotive manufacturer based in Japan and is the thirteenth world largest company by revenue. In 2012, the company ranked the largest automobile manufacturer with a production capacity of 200 million vehicles (Chambers, 2008 p.11). It became the first manufacturer of automobiles to produce over 10 million production units annually. It boasts of being a market leader in the hybrid electric vehicles department globally. The Japanese multinational corporation has its headquarters in Toyota city, Aichi, Japan. Its stocks are publicly traded on the Fukuoka, Nagoya, Osaka, and Tokyo exchanges under the code, TYO:7203 and New York Stock Exchange and London Stock Exchange. The company has 540 consolidated subsidiaries and 226 affiliates with the largest sales reported in the North American market. In July 2014, the company became the largest public company in Japan by revenue and capitalization.

Toyota operates from Japan, a nation with accommodating accounting regulations for various firms. Eligible listed companies in the country have the mandate to utilize IFRSs in preparation of consolidated financial statements. The use of IFRSs is on a voluntary basis for these companies and the companies must establish internal checks to ensure compliance with designated IFRSs through engagement of properly educated employees. No requirements exist for disclosure on use of designated IFRSs or the basis of eligibility for the companies. Listed companies with statutory separate financial documents cannot use International Financial Reporting Standards. By august 2015, the number of companies using IFRS reached 91 compared to 20 companies in 2013. The Japanese modified international standards (JMIS) are a set of accounting standards introduced in 2015 that comprises the IFRSs and ASJB modifications. The major modifications relate to OCI recycling and goodwill amortization but other standards are in accordance with IFRS provided by IASB (IASB 2003 p.2). JMIS is also for specified listed companies in consolidation of their financial statements. Regulations in preparation of consolidated financial statements under JMIS are identical to those provided under designated IFRS. Subsidiaries of foreign companies can use financial reporting standards used in their home countries provided this adheres to investor protection and protects public benefits.

Toyota Motors consistently use IFRS in treatment of its inventory as well as revenue in the financial statements. It values its inventory at the lower of net realizable value and cost of acquisition or purchase. The cost of inventory includes cost of production, conversion costs, and transportation costs involved in movement of stock from one point to another. The company uses the FIFO method in treatment of inventory while including major costs in its valuation. Revenue realized by the company enters the books of accounts after receipt of payment on units sold. Costs and losses incurred on the inventory qualify as an expense since they reduce the amount of revenue realized from sale of automobiles (Monden, 2007 p.47). The company also recognizes the value of work in progress i.e. automobiles undergoing the production process since their costs determine their value. They are part of the company’s assets hence the need for including their value in valuation of inventories. It does not however include goodwill amortization in valuation of assets to avoid misleading users on the actual value of assets. Goodwill amortization is not an actual expense hence may provider a loophole for manipulation and misuse of company’s funds hence the decision to eliminate it. The inventory valuation and revenue recognition therefore follow the IFRS standards applicable by organizations across the globe.

The Accounting Standards Board of Japan (ASBJ) established in 2001 developed Japanese accounting standards/ Japanese GAAP. Under the Tokyo agreement of 2007, ASBJ works towards converging the Japanese accounting standards with International Financial Reporting Standards (IFRS). This aims at eliminating differences in reporting of financial items to avoid misleading users, which may lead to losses. Japan has been on the forefront of encouraging adoption of IFRS by relaxing requirements for companies volunteering to adopt the standards (Jinnai, 2000 p.36). This follows the realization that adoption of IFRS comes with various advantages to the nation’s economy due to adherence to international standards. Japanese Institute of Certified Public Accountants (JICPA) contributes to development of accounting standards through analysis of documents provided by ASBJ and IASB. JICPA also offers training and development programs for its members to prepare them for the adoption of IFRS. It updates the accountants within Japan on various requirements of IFRS and any updates on the standards to ensure continued observance of high quality standards.

Japan is a developed nation with several multinational operating beyond boundaries such as Toyota Motors. It acknowledges dealings with other countries and intends to adopt accounting standards that facilitate interpretation of financial documents. The accounting environment offers freedom for firms to choose from a range of accounting standards. This enables the choice of standards that best suit the presentation of financial items to potential users of the information. This in turn attracts investors hence contributing to the growth of the business in the end. Adoption of the IFRS standards occurs on a voluntary basis hence organizations are not under any obligation to adhere to the standards. The voluntary basis adoption enables organizations to embrace the changes by learning about the requirements and tailoring their accounting practices to suit their nature of business at their own pace. This has encouraged many organizations to embrace the use of IFRS especially when dealing with international partners. Toyota is one such company that recognizes that its business operates across the globe hence the need to tailor financial statements for the sake of stakeholders in various countries. IFRS offers the perfect opportunity to prepare financial reports in a standard format that investors across the globe can comprehend (Monden, 2007 p.61). Using its financial statement, one can compare its performance with major global automobile companies across the globe. Honda and Nissan are such competitors who also appreciate the advantages of adopting IFRS in preparation of financial statements. Through the income statements, statement of financial position, cash flow statements and other documents, one can study the performance of the company in relation to the other. Arising discrepancies are therefore easy to follow as well as correct depending on their causes. Determining why the competitors perform better in a certain field can enable the company assess its performance and raise its standards to those of competitors. IFRS is therefore a very useful tool for multinational companies such as Toyota motors that enable standardization of financial statements’ preparation.


Chambers K. D. 2008. Toyota. Japan: Greenwood Press.

International Accounting Standards Board. 2003. Improvements to International Accounting Standards. London: IASCF Publications.

Jinnai Y. 2000. Japanese Accounting. Bradford: MCB University Press.

Monden Y. 2007. Japanese Management Accounting Today. New Jersey: World Scientific Publications.