Accounting in JapanAccounting in JapanWhat factors do you consider to be primarily responsible for the Japanese accounting system being significantly different from other national systems and what influences do you consider the Japanese system will have on international accounting in the future?
INTRODUCTIONJapan as an accounting jurisdiction is characterized by the dominance of the state (Haller and Raffournier, 2003). The accounting rules have been set out in the past fifty years as statute law with an implicit objective that accounting should contribute to the growth of the national economy (Haller and Raffournier, 2003). Until recently, the accounting profession had played a minor role in shaping accounting practices, and he accounting profession and auditing practice was created by law after World War II as a discipline needed to reactivate the securities market in Japan (Haller and Raffournier, 2003). Going back in time would show that industrialization of Japan began in 1868 after the Meiji Restoration (Nobes and Parker, 2004). In 1890 and 1899, the first Commercial Code was established based on a Franco-German model and oriented towards creditors and tax collection (Nobes and Parker, 2004). A deeper look at Japan’s accounting and financial reporting reflects a mixture of a number of domestic and international influences (Choi et al., 1992), with the first half of the twentieth century having the accounting thinking drawing influences from France and Germany (Lawrence, 1996), and the second half from the United States, that emphasizes on shareholder information (US) (Choi et al., 1999). Because Japanese accounting system bents more to tax influences, it is classified as the uniform accounting approach (Choi et al., 1992). In addition, following the Hofstede and Gray’s framework would put Japan under the conservatism or masculinity cultural classification (Choi et al., 1992). However, it is widely known that Japan’s accounting system differs significantly from other national systems; therefore this paper is to discuss the factors for the differences and to consider whether the Japanese system will have any influence on international accounting in the future.
LEGAL SYSTEM AND STANDARD SETTINGIn terms of legal and institutional basis of accounting, the national government has the most significant influence on accounting in Japan (Arai and Shiratori, 1991 cited from Nobes and Parker, 2004). There are three main sources of regulation, all imposed by the government and administered by two separate ministries (Lawrence, 1996). The Ministry of Justice (MoJ) is responsible for the Commercial Code; the Ministry of Finance (MoF) is responsible fro the Securities and Exchange Law, the tax law and regulations and the Business Accounting Deliberation Council, which is the body that publishes financial accounting standards (Lawrence, 1996). The legal framework is better illustrated below.
The accounting of the Japanese economy
The national law governing the financial industry was drafted in 1923 and promulgated that very year; the economic and national development authorities had no control over it. As in Japan, a central state controlled the country’s finance industry. It was a state enterprise founded for the purposes of national management of the economy and the development of the whole of society.
The National Planning Authority (no. 3) was responsible for the construction of three new national roads (no. 38a, 39, 40, 41 and 43) (Lawrence, 1995)
The economic planning authorities, in all their capacity, directed what was to follow as the basis for development. The development stage was determined by various factors including the need of public-sector support and the nature of the market.
The Economic Division was responsible for economic development of a local level and responsible for the activities specified in the regulations.
The Government Development Office (GOOD) was responsible for the policy of improving economic, social and social standards (Lawrence, 1996)
In order to provide for this stage of development, the finance sector is regulated through the Ministry of Finance, while the public sector is under the direction of the Finance Division of the Ministry of Finance.
The private sector, however, had little interest in public sector development. In fact, private activities, even those which have a direct commercial interest and are not subject to government regulation, may pose an important role.
The Ministry of Financial Administration of Japan under the Financial Administration of the National Development Commission, ran a few institutions: the Japanese Financial Commission, the Japanese Bureau of Statistics Japan, and the Financial Administration of the National Assembly of People’s Departments and Deputies of Japan. In all cases, the ministry played a central role in the development of the national economy and had special responsibility for policy and action by the Ministry of Finance.
The Cabinet Office of the Governor of the Official Bank of Japan, the NIB, was tasked with collecting government-issued notes and issuing them to domestic and international investors. According to Lawyer and economist Akiyori Shintani (1995, p. 10), this function and the function of the National Bank were related.
In Japan, the public sector was defined by the Office of the Governor of the Official Banking Act. To ensure that it was not burdened with any tax or other social obligation on account of the amount to be deposited.
The financial sector, where the management was composed of a representative of the financial services sector, was governed in the economic and cultural sense based on the principles of fiscal regulation and public administration: the monetary policy of the Bank of Japan and economic policy of its members. The monetary policy of the Financial Administration and the Banking Division of the Ministry of Finance was that of a central regulator of
Adopted from Lawrence (1996)The Commercial Code was enacted in 1899 and it deals with limited liability companies (Kabushiki Kaisha), such as incorporation procedures, issuance of shares, and duties and responsibilities of directors and statutory auditors (Haller and Raffournier, 2003). The code sets the legal framework of accounting in Japan and is in the centre of the triangular legal system, and given its generality, coupled with an implicit and persistent belief in Japan that accounting should eventually contribute to the development of the national economy as a whole (Haller and Raffournier, 2003).
ACCOUNTING PROFESSIONThe Japanese accounting profession is divided into two groups that provide services to third parties. One is the licensed tax practitioner (Zeirishi) and the other is the certified public accountant (Konin Kaikeishi) (Haller and Raffournier, 2003). Tax practitioners are individuals who have passed the required examinations or obtained through some other way (i.e. working as a tax agent of the Japanese Tax Administration for a certain number of years), and who are registered with the appropriate regional Certified Public Tax Accountants Associations (Haller and Raffournier, 2003). They principally provide tax compliance and consulting services, which also includes bookkeeping and preparation of accounts (Haller and Raffournier, 2003). The certified