Case 1

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A European company ("Company A") has had a Japanese subsidiary ("Subsidiary A") for more than 10 years. 

Several years ago, Company A seriously suffered from not being able to understand what was happening in Subsidiary A, that hadn't had an audit till then.

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(the problems we found)

Subsidiary A's accounting had been solely done for the tax purposes, which had caused the problems below.

  - inventory

        Although Subsidiary A had a huge amount of obsolete aged inventories, it did keep their original book

        values that were quite different from the actual values. 

  - provision

        Subsidiary A didn't recognize provisions at all, even though it actually bore not a few amounts of such

        liabilities. 

  - reporting

        The reports that Subsidiary A prepared and sent to Company A were too simple. For example, we found 

        that quite large amounts were booked in items like "miscellaneous expenses", "miscellaneous profits",

        "miscellaneous losses" in the income statements.

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(afterward)

  - inventory

        Subsidiary A has started to have actual values on its accounting books and to adjust them to the values

        that are allowed by the tax laws. This modification is only done in their tax returns and the temporary

        differences between the accounting books and the tax returns are presented as deferred tax assets with

        the effective tax rate multiplied.

        Because obsolete items were clearly seen, Subsidiary A has begun physically disposing unnecessary

        items since then. Now inventory is well controlled in Subsidiary A.

  - provision

        Subsidiary A has started to recognize necessary provisions on its books. As like inventory, they are

        modified in the tax returns as temporary differences. 

  - reporting

        The reports that are submitted to Company A have been compiled by us since then, as it is a little bit

        difficult for Subsidiary A with its limited resources.

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