The accounting standards of Japan originate from divergent sets of nationalistic characteristics and the financial markets of other countries (Benston, Bromwich, Litan & Wagenhofer, 2006). Specifically, the influence of such accounting standards accrues from successive governments over the years. Recently, the Japanese government stepped up their efforts to harmonize their standards with international ones; however, the experience of financial reporting and regulation in Japan remains not particularly easy in the event of exporting one regime to other countries (Benston, Bromwich, Litan & Wagenhofer, 2006). While this is the case, the IASB remains to be highly mandated with creating fiscal reporting benchmarks utilized globally (see Appendix A for more information on Financial Reporting Standards in Japan). This requirement for the convergence of IFRS is given credence by the claim that a focused set of accounting benchmarks of a higher quality than others represents a significant means, for instance, of improving the comparability of fiscal reporting and further minimizing the costs of its analysis and preparation (Doupnik and Perera, 2012). Presently, more than 125 countries have placed a permission and a requirement needing IFRS in all fiscal reports, making the convergence of accounting an irrevocable and essential component of the overall process of globalization.
Owing to this global convergence trend, the Business Accounting Council (BAC) of Japan on June 30, 2009, announced its forthright verdict to permit the non-compulsory inclusion of IFRS commencing with the fiscal year that started on March 2010 for all the listed companies and their consolidated fiscal statements. Moreover, in 2009, the BAC fully stated its overall plans to issue decisions regarding compulsory adoptions of IFRS in 2012. Nonetheless, the Minister of the Financial Services Agency (FSA), Shozaburo Jimi adjourned the pronouncement relating to compulsory implementation for an unspecified time. Consequently, this made the mandatory adoption of IFRS in Japan non-plausible and therefore extended beyond 2015 since according to Jimi, the country required at least five to seven years for preparations. The reasons for Minister Jimi’s statements were the consideration of historical, social, economic, and political factors, which were deemed significant for policymakers since the inherent accounting system in Japan is notably divergent especially when likened to the one used in Anglo-American countries. Such deviations obligated the Accounting Standards Board of Japan (ASBJ) to come up with entire groups of conceptual frameworks and accounting standards, which reconcile related laws with these standards of financial reporting (Tsunogaya, Hellmann & Scagnelli, 2015). Such laws included the Financial Instruments and Exchange Act, the Corporation Tax Law, as well as Companies Act.
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To echo these contextual dynamics further, the policymakers in Japan and various bodies tasked with the setting of standards follow two pertinent objectives. These objectives are the enhancement of international commensurability in fiscal reporting; the increase of the suitability of Japanese capital markets; and the maintenance of institutional and internal complementarity between fiscal infrastructures and systems of report such as human resource and laws related to accounting. Within Japan, such aspects of international complementarity are particularly significant for the establishment of attractive and well reliable capital markets within the country. Most notably, different studies indicate the importance of having a link between divergent institutions to enable careful fitting and mutual increase in benefits (Tsunogaya, Hellmann & Scagnelli, 2015). Such endogenous and exogenous pressures, which need both institutional commensuration and the attribute to be compared internationally, influences discussions presently happening in Japan, in relation to the implementation of IFRS.
The accounting model worked on by Gernon and Wallace (accounting ecology framework) provides a full and rigorous examination as well as major features within the accounting environment of Japan (1995). Predominantly, the major objective of this particular study focuses on the stakeholders who include financial statement makers in the service and manufacturing industry, credit rating, and securities company’s agencies, the Japanese Institute of Certified Public Accountants (JICPA), persons associated with the Tokyo Stock Exchange, and the Japan Business Federation. Other stakeholders include the ASBJ and its organization in the administrative wing (Financial Accounting Standards Foundation (FASF)), the Japanese Trade Union Confederation (Rengo) as well as other accounting academics. The environment of accounting can be defined as a system that is multifaceted in nature in which not a single body occupies a multidimensional position (Gernon & Wallace, 1995). This is significant since researchers are able to study effectively the entirety of both domestic and international contexts of financial systems and relate them to their inherent ones.
The above standard setters continue to succeed in lessening the wide gap between Japanese standards of the IFRS. In Japanese financial accounting and reporting, three significant laws govern the trade. These laws are the Commercial Code, the Corporate Income Tax and the Securities and Exchange Law. To this end, the commercial code represents and requires corporations to prepare reports annually on an individual basis and submitted to meetings of shareholders, which has to include income statements, balance sheets, and business reports representing profit loss/appropriation proposals. The exchange and securities law represents designated securities, which requires each person to file semi-annual and annual reports with both the stock exchange and the Prime Minister. Such financial statements undergo preparations for the sole purpose of periodic reporting and securities registration under the law leading to inclusivity in a consolidated balance sheet. Further, such consolidations include the consolidated statement of retained earnings, the income statement, the statement of cash flows, among other schedules. Finally, the corporate income tax accords various methods for the calculation of taxable income, which necessitates expenses and revenues to undergo record keeping of accounts in order to be qualified under the law.
References
Benston, G., Bromwich, M., Litan, R., & Wagenhofer, A. (2006). Worldwide Financial Reporting. http://dx.doi.org/10.1093/0195305833.001.0001
Doupnik, T., & Perera, H. (2012). International Accounting . New York, NY: McGraw-Hill.
Gernon, H., & Wallace, R. (1995). International accounting research: a review of its ecology, contending theories and methodologies. Journal of Accounting Literature , 14 (1), 54-106.
Tsunogaya, N., Hellmann, A., & Scagnelli, S. (2015). Adoption of IFRS in Japan: challenges and consequences. Pacific Accounting Review , 27 (1), 3-27. http://dx.doi.org/10.1108/par-11-2012-0056
Appendix A
Financial Reporting Standards in Japan
The list below represents accreditation bodies and those representing pertinent standards of financial reporting in Japan:
Japanese Accounting Standards ('Japanese GAAP')
Accounting Standards Board of Japan (ASBJ)
International Accounting Standards Board (IASB)
International Financial Reporting Standards (IFRSs)
Financial Services Agency of Japan (FSA)
Business Accounting Council (BAC)
Japan’s Modified International Standards (JMIS)
ASBJ Modification Accounting Standard No. 1 Accounting for Goodwill
ASBJ Modification Accounting Standard No. 2 Accounting for Other Comprehensive Income
International Forum For Accountancy Development (IFAD)
Generally Accepted Accounting Principles (GAAP)
