TOKYO—Japan's financial instruments and exchange law came into force Tuesday and will require listed companies in the country to comply with new rules on internal controls and financial reporting.
The law is modeled on the U.S. Sarbanes-Oxley Act on corporate governance and is known informally as J-SOX.
Companies that fail to comply with the rules run the risk of fines or imprisonment.
The J-SOX rules will apply to about 3,800 Japanese listed firms, their large subsidiaries and affiliates.
Among other things, the law requires companies to review how well risk is managed.
"The requirement for all listed companies to review how well risk is managed, both at company level and at process level, in the context of financial statements is a new concept for many Japanese organizations," said Abigail Simpson, a senior consultant in Marsh Inc.'s risk consulting practice in London, in a statement.
"As a result, this requirement has proved challenging and has been fuelled by the limited number of accountants, auditors and consultants to assist with the implementation of regulations," she added.
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