The Japan Institute of Certified Public Accountants has released guidelines to ban client firms from conducting “cross-share trading,” a practice to make their balance sheets look better.
Cross-share trading is a scheme in which companies sell their held shares with latent profits, then immediately buy them back to eke out profits.
Companies typically use the scheme ahead of closing their books, thereby sprucing up their balance sheets.
The release of the new guidelines by the largest association of government-certified accountants, coming just ahead of the Sept. 30 book-closing for the half-year term, will likely deal a blow to some firms.
The association had earlier announced its stance to ban firms from summing up profits churned out through opaque transactions. But some companies have continued to conduct cross-share trading in defiance of the ban.
The new guidelines explicitly ban such transactions as buybacks of shares within five market days form the sale and share selling accompanied by derivatives contracts providing for buybacks at a specific date.
Kunio Nishikawa, a director at the association, said, “We have crafted those directives in time for the imminent mid-term book-closing for fiscal 2000, and we want member accountants to make precise examination of financial statements accordingly.”
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