Japan's New Lease Accounting Standard: The System Work Before April 2027

From the first fiscal year beginning on or after 1 April 2027, Japanese GAAP puts almost every lease on the balance sheet. Office and shop rent, warehouses, company cars and leases buried inside service contracts all become a right-of-use asset (使用権資産) and a lease liability (リース負債). For a company with a March year end, that is six months from now.

The accounting judgements belong to your finance team and your auditor. This article is about the other half: the contract data, the calculation, the journals and the interfaces. That is where these projects run late.

What Changes, and for Whom

The Accounting Standards Board of Japan (ASBJ) published ASBJ Statement No. 34, Accounting Standard for Leases, with Implementation Guidance No. 33, on 13 September 2024. They replace Statement No. 13 from 2007. The ASBJ's summary (in Japanese) sets the dates:

• Required from the start of fiscal years beginning on or after 1 April 2027, in both consolidated and individual financial statements.
• Permitted from fiscal years beginning on or after 1 April 2025.

Nothing the ASBJ has published since has moved those dates.

Under the old standard, finance leases went on the balance sheet and operating leases were expensed as rent. Under Statement No. 34 the lessee recognises an asset and a liability for every lease and books depreciation and interest, whatever the lease used to be called. That is the IFRS 16 single model, with some simplifications. Lessor accounting stays largely as it was.

Two details matter more for systems than they look.

It applies to individual company accounts, not only consolidated ones. The ASBJ considered limiting it to consolidated statements and decided against it. Every group company's ledger carries the new numbers, so a top-side adjustment at consolidation does not solve it.

Leases now have to be identified. Statement No. 13 had no rules for spotting a lease inside a contract. Statement No. 34 does, and the ASBJ says plainly that contracts never accounted for as leases may turn out to contain one.

Who is in scope

The standard is written for companies applying full Japanese GAAP. In practice that means listed companies, and large companies under the Companies Act (capital of 500 million yen or more, or total liabilities of 20 billion yen or more), which must appoint an accounting auditor. The ASBJ notes that small and medium-sized companies normally follow the SME accounting guidelines instead.

That includes Japanese subsidiaries of foreign groups that are large companies under the Companies Act. Their statutory accounts are Japanese GAAP, whatever the parent reports in. With an IFRS 16 parent, most of the data exists: the ASBJ designed the standard so that a company applying IFRS in its consolidated statements can use its IFRS 16 figures in its individual statements with basically no adjustment. A US GAAP parent means more work. Topic 842 keeps a single straight-line cost for operating leases, while the Japanese standard requires depreciation plus interest for all of them.

Who this is not for: groups already applying IFRS 16 and carrying those numbers in their entity ledgers have done most of this. None of what follows is accounting advice.

Where the System Work Is

1. Finding the leases

ProShip, a vendor of lease accounting software, surveyed 1,007 accounting staff at listed and large companies in May 2025 and published the results in April 2026. Only 23.5% had finished surveying the contracts that might be in scope; 53.9% were still working through them.

The definition follows IFRS 16: a contract, or part of one, that conveys the right to use an identified asset for a period of time in exchange for consideration. The test is control. You get substantially all of the asset's economic benefits and you direct how it is used.

Real estate is the obvious population. The harder population hides in service contracts: logistics agreements with dedicated warehouse space or vehicles, IT hosting on dedicated hardware, outsourcing agreements tied to specific equipment.

Whether each one contains a lease is a judgement for finance. Finding them is a data job. Start from accounts payable: pull 12 to 24 months of payments, group them by vendor and account, flag recurring amounts on rent, logistics, outsourcing and IT accounts, then request the contracts behind them. A questionnaire to departments catches what the ledger misses.

The standard also lets a company leave leases of intangible assets out of scope. Get that decided early: it settles whether software licence contracts enter the register at all.

2. A register that can carry the judgements

The lease register becomes the system of record. Each lease needs:

• entity, cost centre, counterparty, underlying asset, and the asset class it would sit in if owned (the notes need that split);
• commencement date and non-cancellable period;
• extension and termination options, with the "reasonably certain" assessment, who made it and when;
• the payment schedule, split into fixed payments, payments linked to an index or rate, variable payments outside the liability, residual value guarantees, purchase options and termination penalties;
• non-lease components, and whether finance elected to combine them by asset class;
• the discount rate;
• prepayments, initial direct costs, incentives and restoration costs, which set the opening right-of-use asset;
• leasehold premiums (借地権の設定に係る権利金等) and re-lease clauses (再リース), both of which have Japan-specific rules;
• flags for the short-term and low-value exemptions.

Lease term is where Japanese real estate makes this hard. For ordinary land and building leases (普通借地契約, 普通借家契約) the ASBJ acknowledged that judging the term is difficult and added Japan-specific worked examples. In the ProShip survey, 40.0% of respondents already in preparation named lease term as the issue that takes longest. Store each assumption and its reason as data, not as a comment in a spreadsheet cell.

3. The calculation

The liability is the present value of lease payments not yet paid. The right-of-use asset starts from that liability, plus prepayments, initial direct costs and restoration costs, minus incentives. Interest uses the effective interest method. Depreciation normally runs over the lease term to zero.

Japanese GAAP keeps simplifications IFRS 16 does not have, and the system must support whichever ones finance picks:

• If total right-of-use assets are immaterial, interest can be spread straight-line, or left out with asset and liability recorded at the undiscounted payments.
• Leases of 12 months or less with no purchase option can be expensed.
• Small leases can be expensed: the old test of 3 million yen in total payments per contract carries over, next to an IFRS 16 style exemption for assets of low value when new.

4. Remeasurement events

A register that is right on 1 April and wrong by June is no use. The standard defines two kinds of event.

Modifications change scope or consideration: floor space reduced, term shortened or extended, unit rent changed. Adding an asset at a standalone price creates a separate lease. A reduction in scope cuts the asset and books a gain or loss. Other changes adjust the asset by the change in the liability.

Reassessments happen without a modification: the lease term changes, or payments change through a purchase option, a residual value guarantee, or an index or rate the rent is tied to.

The system needs an event log with effective dates, recalculation forward from each event, and every earlier schedule kept so the auditor can trace each number. The harder problem is organisational. The person renegotiating a warehouse lease does not work in accounting, so the event has to reach the register through a workflow, not a remembered email.

5. Fixed assets, journals and the ledger

Finance leases are usually already in the fixed-asset system. Former operating leases, mostly property, are the new population.

The journal flow:

1. At commencement: right-of-use asset against lease liability.
2. Each month: depreciation, and interest on the liability.
3. Each payment: the rent invoice reduces the liability instead of hitting rent expense.
4. Each remeasurement: the adjustment to asset and liability, plus any gain or loss.

Step 3 is where integrations break. Today the landlord's invoice comes through accounts payable and posts to rent expense (地代家賃). If that continues while the lease system posts depreciation and interest, the rent is counted twice. The usual fix is to route lease invoices to a clearing account and let the lease system post the split, which needs a vendor and contract mapping that survives contract changes.

Leases between group companies have to be identifiable on both sides for elimination. And keep the payment schedule as a record in its own right: roughly nine in ten ProShip respondents expected an impact on their tax filing work, because accounting and tax treatment are expected to diverge.

6. Disclosures

The lessee notes include total cash outflow for leases, additions to right-of-use assets, depreciation by asset class, short-term lease expense, and variable payments left out of the liability. Each is a report to build and reconcile, and cash outflow comes from payment data, so it depends on the AP link. A company preparing consolidated statements may leave several of these notes out of its individual statements.

Package or Custom?

Most companies will buy. In the ProShip survey, 35.4% planned to introduce or replace a lease management system and another 23.0% were considering it. For outside help beyond their audit firm, 15.9% had already signed a contract and 42.1% were considering one. It is a vendor's survey, so read it as a direction, not a measurement.

A good package handles the calculation, schedules and standard reports. It does not find your contracts, clean your data or connect itself to accounts payable and the ledger. That leaves three common situations:

• Packaged ERP with a supported lease or fixed-asset module. The vendor ships the logic. Your work is configuration, data loading, the AP change and testing. Get the release date and its coverage in writing.
• Specialist lease software next to the ERP. The interfaces are the project: contract data in, journals out, AP mapping, entity and cost centre master data, and reconciliation between the two systems.
• A fixed-asset system built in-house. No vendor update is coming. Either the system gains a right-of-use asset class, lease-term depreciation, remeasurement and a link to a liability schedule, or lease accounting moves to a package and the in-house system keeps owned assets. Both sides change either way.

For subsidiaries of foreign groups, a group lease tool may already feed parent reporting. If the Japanese options can be aligned with group policy, one calculation serves both books; if not, the system holds two bases per contract.

A Plan for the Next Six Months

Assuming a March year end, so the standard applies from 1 April 2027:

October 2026: inventory and decisions. Run the AP analysis and send contract requests. Get finance's policy choices written down: exemption thresholds, combining non-lease components, intangible assets in or out, the lease term approach for ordinary building leases, discount rates. Choose the system, or confirm the vendor's release.

November: the register. Fix the data model, load contracts, start reviewing judgements. Specify the interfaces: contract data in, journals out, AP routing.

December: build. Configure the calculation, map the journals, build the AP change.

January 2027: test with real contracts. Run the full register against the impact estimate and compute opening balances as at 1 April 2027. The standard allows the cumulative effect to go to opening retained earnings, so the opening calculation is a run of its own.

February: dry run. Close one month on the new basis in a test environment, with payments, depreciation, interest, one modification, one reassessment and the disclosure reports.

March: cutover. Freeze the register, finalise opening balances, switch AP routing for April invoices, document the controls and walk the auditor through the flow.

April 2027: live. If you close monthly, the first close on the new basis is at the end of April. The first half year ends on 30 September 2027.

If you are behind this plan, decide on a fallback now: a controlled interim calculation from the same register for the opening balances and first months, with the system live during the year. Not ideal, but far better than no register.

With a December year end, the first year begins on 1 January 2028. Same plan, fifteen months instead of six.

Where This Fits

We are engineers, not accountants: finance and your auditor make the policy decisions, and we build to them. Our part is loading and cleaning the lease register, the interfaces between lease software, accounts payable and the ledger, and changes to in-house fixed-asset systems, as described on our ERP modernisation and legacy system maintenance pages. If April 2027 is in your plan and the integration is not, write to office@c9group.dev.