A Critical Evaluation of Japanese Accounting Changes Since 1997

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A Critical Evaluation of Japanese Accounting Changes Since 1997

Bill Gordon

November 1999

Table of Contents

Acronyms

Introduction

I. Japanese System of Accounting to 1997

A. Key Foundations

Commercial Code (CC)
Securities and Exchange Law (SEL)
Corporate Income Tax Law
Principal Objectives

B. Historical Development Since 1945

Allied Occupation
Requirement for Independent Audits (1974)
Requirement for Consolidated Financial Statements (1977)

C. Accounting Standards in Three Key Areas

Consolidations
Fair-value Accounting
Pension Accounting

II. Reasons for Accounting Changes Since 1997

A. Accounting and Auditing Weaknesses

Business and Regulatory Environment
Loopholes and Weaknesses in Accounting Rules
Weak Auditing Practices

B. Internationalization and Innovation

Globalization of Investing and Financing
International Accounting Standards (IASs)
Financial Market Innovations

C. Big Bang Financial System Reforms

Bad Loan Crisis
Financial Scandals and Bankruptcies
Big Bang Announcement and Implementation

III. Critical Evaluation of Accounting Reforms

A. Examination of Accounting Changes in Three Major Areas

Consolidations
Fair-value Accounting
Pension Accounting

B. Effects of Accounting Changes

Corporate Restructuring
Revisions to Post-employment Benefits

C. Remaining Weaknesses

Government's Reluctance to Radically Change
Triangular Legal System
Differences with International Standards
Ministry of Finance Control
Auditors and Corporate Governance

Conclusion

Bibliography

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