Topic 4: Country-Specific Accounting Systems - JAPAN Flashcards
(12 cards)
What are the key historical influences on Japanese accounting?
Japanese accounting developed under dual influences: 1) The Commercial Code originating from German models (1890s) emphasizing creditor protection, 2) US occupation after WWII introducing Securities and Exchange Law (1948) creating a dual reporting system. Japan was a founder member of IASC (1973) but took a gradual approach to international standards.
What is the ‘triangular system’ in Japanese accounting?
The Japanese ‘triangular system’ consists of three sets of rules: 1) The Commercial Code (now Companies Act) for all companies, emphasizing creditor protection, 2) The Securities and Exchange Law (now FIEA) for listed companies, emphasizing investor information, and 3) Tax laws with significant influence on accounting choices.
How does the Japanese legal system influence accounting?
Japanese commercial law was originally based on German code law, creating detailed accounting regulations within legislation. This creates a rule-based rather than principles-based approach, with emphasis on compliance with specific regulations rather than professional judgment.
How did the accounting profession develop in Japan?
The Japanese Institute of Certified Public Accountants (JICPA) was established in 1948 under US occupation, much later than Anglo-American bodies. The profession had limited standard-setting authority as accounting was controlled through legislation and governmental bodies (Financial Services Agency).
What is the relationship between tax and accounting in Japan?
Japan has significant tax-accounting conformity, particularly for individual company statements. The ‘definite settlement of accounts’ principle (確定決算主義) requires tax returns to be based on financial statements approved by shareholders, creating incentives for tax-advantageous accounting choices.
How does the Japanese approach to financing affect accounting?
Japan traditionally relied on bank financing, keiretsu (business group) cross-shareholdings, and long-term relationships rather than public equity markets. This created less demand for investor-focused reporting and more emphasis on stakeholder interests, particularly creditors and employees.
What are the key characteristics of traditional Japanese accounting?
Traditional Japanese accounting features: strong tax influence, conservative measurement (accelerated depreciation, completed contract method), limited fair value, extensive provisions, emphasis on creditor protection over investor information, focus on individual company statements, and limited disclosures compared to Anglo-American systems.
How has Japan approached IFRS adoption?
Japan has taken a gradual, voluntary approach rather than mandatory adoption. Since 2010, certain Japanese companies can voluntarily adopt IFRS. Simultaneously, Japan developed ‘Japan’s Modified International Standards’ (JMIS) as an intermediary approach between full IFRS and Japanese GAAP.
How does enforcement of accounting standards work in Japan?
The Financial Services Agency of Japan (JFSA, established 1998) provides SEC-like oversight, with significant powers. It includes an Accountants and Auditing Oversight Board to monitor audit quality.
What factors have driven accounting changes in Japan since the 1990s?
Key drivers include: 1) The bursting of the asset price bubble exposing weaknesses in traditional accounting, 2) Asian financial crisis highlighting transparency needs, 3) Growing international investor presence demanding familiar standards, 4) Declining keiretsu system and bank financing, and 5) Government recognition of need for international comparability to maintain global financial center status.
How does the Japanese keiretsu system relate to accounting development?
The keiretsu system of interlocking business relationships and cross-shareholdings reduced demand for external investor-focused reporting, as member companies and main banks had direct access to information.
What challenges has Japan faced in moving toward international standards?
Challenges include: 1) Reconciling fair value emphasis of IFRS with traditional conservatism, 2) Shifting from rule-based to principles-based standards requiring more judgment, 3) Balancing tax system needs with investor information, 4) Addressing cultural preference for uniformity and precision over flexibility, and 5) Managing transition costs for companies accustomed to different reporting approaches.
