On July 27, 2026, Japan’s Financial Accounting Standards Foundation (FASF) — the body responsible for developing Japanese accounting standards — formally decided, after roughly a year of consultation with experts and industry groups, to retain the current “systematic amortization” treatment of goodwill arising from corporate M&A. This article looks at the background to that decision, what it actually changed, and what it means for practice.
What Is Goodwill?
Goodwill is the amount a buyer pays for a target company in excess of its net asset value (assets minus liabilities) in an M&A transaction. It represents payment for value that doesn’t appear on the balance sheet — brand strength, technology, customer relationships, future earning power — and is recorded as an asset on the acquirer’s books.
What Was Decided
The decision has two main elements.
First, companies will continue to amortize goodwill systematically over a set period (up to 20 years), expensing it on a regular schedule, just as they do today. Second, the idea of letting companies choose between amortizing and not amortizing goodwill has been shelved.
At the same time, to soften the drag amortization puts on reported profit and make Japanese companies easier to compare with overseas peers, the FASF plans to recommend that the Accounting Standards Board of Japan (ASBJ) — the body that actually writes the standards — consider requiring disclosure of “profit before goodwill amortization” in financial statements.
Why Calls for Non-Amortization or Optionality Emerged
Under IFRS and US GAAP, goodwill is not amortized on a regular schedule. Instead, companies run an impairment test at least once a year and record a loss only when the value of goodwill is judged to have declined.
In Japan, groups such as the Japan Association of Corporate Executives (Keizai Doyukai) and the Japan Venture Capital Association (JVCA), together with many startup executives, had been pushing for non-amortization or an optional approach. Their concern: the large goodwill amortization charges that often arise from acquiring startups weigh on operating profit year after year, discouraging companies from pursuing acquisitions in the first place. Critics also pointed out that Japanese-standard companies, which must amortize goodwill, tend to report lower operating profit than otherwise-comparable IFRS companies — putting them at a disadvantage both in explaining performance to investors and in competing globally.
Why Amortization Won Out
In the end, the move to non-amortization or an optional system was shelved, for two main reasons.
The first is financial risk and the danger of delayed impairment recognition. A non-amortization approach — relying solely on impairment testing — leaves much to management’s estimates and judgment, and impairment charges under that model tend to get pushed back. That creates the risk of a sudden, large impairment loss appearing years down the road. Systematic amortization, by contrast, spreads the risk inherent in an acquisition into small charges recognized every year, which helps preserve financial discipline. One figure often cited in the debate: goodwill runs at roughly 20–30% of shareholders’ equity at major US and European companies, versus only about 1% at Japanese companies — evidence, proponents argue, that regular amortization has kept that risk contained in Japan.
The second reason is concern that letting companies choose would make cross-company comparisons harder and open the door to opportunistic accounting. If companies were free to choose between amortizing and not amortizing, it would not only complicate comparisons across companies but also create an incentive to pick whichever treatment makes profit look better. With roughly 3,600 listed companies using Japanese accounting standards, regulators also appear to have judged that the practical cost of changing the rules would outweigh the benefit.
What This Means for Companies and Practice
Companies that use Japanese accounting standards will continue to make investment decisions on the assumption that any goodwill arising from an M&A deal will be amortized over a set period. That makes it more important than ever to scrutinize whether an acquisition price is justified and how amortization will affect post-deal profit plans.
This matters especially for mid-sized and smaller companies, where a single deal can have an outsized effect on the balance sheet. If the purchase price is too high, goodwill amortization will weigh on profit for years to come. Because that affects not just reported earnings but also conversations with lenders and shareholders, “how much to pay” is becoming an even more consequential management decision than before.
That said, goodwill amortization is not merely an accounting cost. It reflects the expensing, over time, of the future earning power a company expected to gain from an acquisition — and it continually asks management a pointed question: is the value-creation story told at the time of the deal actually playing out as planned?
That’s why, in M&A, what matters is not simply completing a deal but steadily delivering the value expected after it closes. Pre-deal due diligence and valuation are essential for sound investment decisions, but they are only the starting point. What ultimately determines whether an M&A deal succeeds is what happens afterward — rigorous post-merger integration (PMI) and ongoing performance monitoring to verify that the synergies envisioned at the outset are actually being realized.
This debate was ostensibly about accounting standards, but it offers a good opportunity to revisit a more fundamental point: the success of an M&A deal is decided not by how it’s accounted for, but by how it’s managed afterward.