This article looks at J-Sox, what it is, the principals of J-Sox compliance and the importance of reporting and compliance for publicly traded companies in general.
We also look at how J-Sox compares with the Sarbanes–Oxley Act of 2002, the relevant piece US legislation which inspired it and what the broader implications are for international compliance law.
At Nomad Capitalist we help HNWI entrepreneurs or investors to legally reduce their taxes while finding new opportunities overseas. Running or forming foreign companies in unfamiliar jurisdictions can be off-putting unless you’re already familiar with the legal and compliance requirements that entails.
That’s where we come in, as a Nomad Capitalist client our experienced global team will help you to create effective and robust structures that are 100% legal and ensure maximum profitability.
Financial Reporting & International Compliance
At Nomad Capitalist we’re not exactly fans of big government to put it mildly.
But at the same time we’re also champions of corporate responsibility. We believe there’s a right way to do business and a wrong way. Which is why, although we’re often critical of the US government and governments in general, we’re also critical of companies who conduct their business operations in a less than savoury manner.
Why? Because ultimately everyone loses. It’s bad for shareholders and its bad for the market in general. It’s bad for employees who lose out through no fault of their own. It’s bad for business across the board.
Why SOX Compliance Matters
After what happened with Enron and similar scandals the Sarbanes–Oxley Act (SOX) of 2002 came into law, requiring enhanced transparency and guaranteed accuracy of financial reporting. Under the act even company CEOs could be held to account for fraudulent accounting practices.
In Enron’s case, the organization’s financial statements were works of pure fantasy resulting in what was then the largest bankruptcy in US history. Aside from the financial losses, the incident also had a serious impact on investor confidence, not to mention causing another massive dent in America’s reputation globally.
We saw this again recently with Silicon Valley Bank collapse infecting both fintech industry and the global financial system as the world looked on saying, “oh look, another US bank collapse.”
This is why internal control, SOX compliance international applicable laws matters. They hold listed companies and accounting firms to task to ensure their internal processes are up to the scratch, that they minimise accounting errors and that they are held accountable for any fraudulent practices.
Laws like these ensure companies act responsibly, helping to protect investors and overall market confidence.
J-SOX Compliance: Overview
J-SOX is essentially the Japanese equivalent of SOX. It’s an unofficial term, however, though the principal is much the same.
The official title of the act is the Financial Instruments and Exchange Act (FIEA) of 2006, though its similarity to the Sarbanes–Oxley Act earned it the nickname J-SOX.
Like SOX, J-SOX compliance applies to financial reports and internal control activities.
The main four objectives of J-SOX were to:
provide enhanced investor protection
combat insider trading and related fraudulent practices
compel organizations including companies and accounting firms to be more transparent and forthcoming with all their reporting
add additional layers of disclosure requirements for added transparency
In doing so they put the onus on company management to carefully audit their organization, ensure proper controls are in place and be more open and honest with all their financial disclosures.
The Origin Of J-SOX
In general, Japan enjoys a good reputation globally. The Japanese are generally known for being highly industrious and squeaky clean, though that doesn’t mean they’ve not had financial scandals in the past, including major ones at multinationals like Toshiba and Olympus.
Other high profile examples meanwhile, such as the Livedoor scandal, where prominent business leaders were charged with insider trading, prompting the Japanese National Diet (or parliament) to enact tougher laws to protect investors.
And that’s another thing Japan is famous for, by the way, borrowing an idea from abroad and putting their own unique spin on it.
It’s fair to say that J-SOX compliance works pretty much the same as SOX in the US. Many of the same provisions apply, if not in practice then at least in principal.
And since J-Sox extends to foreign companies and other organizations doing business in Japan, your organization needs to be compliant if they wish to do business in the world’s third largest economy.
J-SOX Compliance & Internal Controls
The good news is that by being SOX-compliant you are also therefore already aligned with J-SOX.
Many of the same requirements and regulations on internal controls, financial reporting and risk evaluation apply to each piece of legislation.
J-SOX – Submit Internal Control Reports
As with SOX, the internal control environment is of critical importance.
The difference with J-SOX is that auditing is not done by a third party, and instead is up to the individual organization to conduct their own internal audit of internal controls.
This means you may have to conduct a management assessment, and perhaps even train or hire new management to ensure they can conduct control audits that are in line with the provisions of J-SOX.
These also include provisions related to information technology and the handling of sensitive data.
Your Global Advisor
The Financial Instruments and Exchange law, and indeed financial exchange law in general, demonstrates how complicated international trade can get.
While it’s easy to appreciate the need for such legislation, J-SOX is a perfect example of how, by trading internationally, you can become subject to foreign laws and requirements without fully understanding them.
But at Nomad Capitalist we do all the homework for you in advance, saving you time and money, while also working to help legally reduce your taxes and protect your assets overseas.
To get the most out of your overseas business opportunities become a Nomad Capitalist client today.
J-Sox Compliance FAQ
The Financial Instruments and Exchange Act (FIEA) of 2006 essentially Japan’s equivalent of America’s Sarbanes-Oxley (SOX), hence the nickname J-SOX .
It not only oversees Japan’s financial instruments and organizations within Japan but also those doing business there. So if your company has operations in Japan it will need to comply with the law, ensuring proper risk assessment controls and reporting procedures are in place.
The Sarbanes-Oxley act served as the direct inspiration for J-SOX.
As such many of the same principals are the same, in terms of practice standards and the need for internal control standards and transparent corporate disclosures.
In J-SOX, however, the company itself must conduct an audit and perform risk assessments, rather than an external third party, therefore the responsibility of compliance ultimately falls with company management.
The Japanese act also has specific provisions related to IT and the handling of sensitive data.