Presentation on theme: "Financial Reporting in Japan"— Presentation transcript:
1 Financial Reporting in Japan Chapter 12Financial Reporting in Japan
2 Accounting in Japan Developed Countries. Historically operated a single entry systemEnglish influence on practice, and German influence on statutory law.
3 Japan- Accounting Regulation PUBLIC SECTORPRIVATESECTORKEY:Direct controlInfluenceDIETOTHERSIASCJICPABADCTAXDIV.M.O.FINANCEJUSTICEBusiness Advisory Deliberations Council
4 Sources of Regulation - JAPAN “Triangular System”Commercial code, ministry of justiceAll cos,creditor protectionStatutory audit (focus on fraud)
5 Sources of Regulation - JAPAN Securities & exchange law, M.O.F.Listed cos, investor orientatedIndependent auditM.O.F. OrdinancesB.A.D.C. StandardsCorporate tax law
6 Regulation in Japan The Government plays a prominent role Diet prescribes acceptable accounting principles.Published Accounts must follow the Japanese Commercial Code
7 Regulation in JapanListed company accounts lodged with Securities Division of the Ministry of Finance and follow the Securities and Exchange Law.The Diet provides through the Business Advisory Deliberations Council (BADC),All Japanese corporations file income tax returns with the Taxation Division of the Ministry of Finance.
8 BADC Accounting Principles General principles- True and Fair View; Orderly Bookkeeping; Distinction between Capital and Earnings; Fair Presentation; Continuity; Conservatism; ConsistencyEmphasis on profit measurementStrong adherence to historic costs
9 Accounting Characteristics - JAPAN Contribute to national economyConformity with tax treatmentLittle demand for disclosure
10 Accounting Characteristics - JAPAN Conservatism, income smoothingMultiple accounts:Per commercial codePer SELEnglish language versionV. Slow development of standards
11 Development of Group Accounts - JAPAN Diet request changeBADC exposure draftBADC standardOrdinance consolidations, from 1/4/77may excl subsid’s < 10% group assets & sales
12 Development of Group Accounts - JAPAN Ordinance equity acctg, from 1/4/83may excl subsid’s < 10% group assets, sales & incomeequity acctg for assoc’sBADC standardmay excl subsid’s < 3-5 %subsid defined by control as well as ownership
13 Important accounting standards set after the mid 1990s Consolidated Financial Statements(1997)Research and Development (1998)Postretirement Employee Benefits (1998)Income Tax (1998)Foreign Currency Translation (1999)Financial Instruments (1999)Impairment of Fixed Assets (2002)Treasury Stock and Compulsory Reserves (2002)
14 Accounting regulation in the last decade More accounting standards establishedChanges in accounting standard setting processNew auditing standards (2002)Reconciliation of domestic standards with IAS (IFRS)Recognition of accounting as an infrastructure of market-oriented economyPrivate standard setting organization: ASBJ
16 Reasons for differences in profitability and risk ratios between Japanese and US Companies Differences in accountingThe role of the KeiretsuAttitudes to and availability of debtStock ownership
17 KeiretsusEach keiretsu typically comprises firms in eight or ten different industries.The companies usually hold stock in each other (25% to 30%)The object is not control or influence but operating linksEach keiretsu normally includes a bank
18 Stock OwnershipOne third of Japanese companies shares is owned by the members of the keiretsuOne third is held by banks and other financial institutions outside the keiretsuOne third is held by other individuals
19 Why Are We Considering Japan and America? The Japanese economy has been in recession since the 1990’s.doubts have emerged concerning “Japanese-style management.while the Japanees economy has stagnated, companies in the U.S., and other Anglo-Saxon countries have significantly increased their earnings.
20 Why Are We Considering Japan and America? a paradigm shift from so-called “Japanese-style management” to “Anglo-Saxon-style management,”a style of management that maximizes shareholder value.in light of Enron and World Com, Japanese management have pointed out that there are significant problems with American-style management.