Background --Accounting development towards adoption

2157 extensive reforms in its accounting system and commercial code towards the International standards, which is well known as ―Accounting Big Bang‖. By these reforms, Japanese accounting becomes quite similar to the IAS IFRS. Notwithstanding, there are still some difference left in specific accounting standards. However, since there was a lack of a clear strategy about the structuring of the accounting system, the regulator‘s opinion towards IASIFRS adoption kept changing. In β00β and β00γ, Japanese Financial Services Agency, the Ministry of Justice and Nippon Keidanren 395 expressed negative opinion towards the adoption of IAS. In contrast, there appeared a international trend of convergence with IFRS during that time and this trend spread since then. On 29 October 2002, the International Accounting Standards Board and the US Financial Accounting Standards Board jointly issued a memorandum of understanding formalizing their commitment to the convergence of US and international accounting standards. Moreover, in the following year 2005 which might be seen as the beginning of a new era for financial reporting, International Accounting Standards IAS International Financial Reporting StandardsIFRS were required to be applied in EU countries. Then in this trend, in Japan on March 2005, a joint project on the convergence of Japanese GAAP and IFRS was established to analyze and discuss the equivalent of Japanese GAAP and IFRS Koga and Rimmel 2006. Nippon Keidanren changed its opinion in favor of convergence with IAS in 2006, 3 years after they expressed negative opinion towards adoption. But there was still no real progress. In 2007, the publication of SEC‘s Concept Release on Allowing U.S Issuers to Prepare Financial Statements in Accordance with International Financial Reporting Standards the Concept Release and its proposal, Acceptance from Foreign Private Issuers of Financial Statements prepared in accordance with International Financial Reporting Standards without Reconciliation to US GAAP, made Japan find itself dropping out in the global trend. Therefore, generally speaking, after the 395 Nippon Keidanren Japan Business Federation is a comprehensive economic organization born in May 2002 by amalgamation of Keidanren Japan Federation of Economic Organizations and Nikkeiren Japan Federation of Employers Associations. Its membership of 1,662 is comprised of 1,343 companies, 130 industrial associations, and 47 regional economic organizations as of June 22, 2007. 2158 Big Bang, Japan seems lagged behind compared with its European and US counterparts in converging with IAS IFRS. The changing opinion of the regulators seems to caused by external influences of international trend and the lack of strategy based on comprehensive understanding of the state of Japanese company, its accounting environment .

3. The publication of Interim IFRS Roadmap

What represent Japan‘s major step towards adoption is the publication of the ―Interim IFRS Roadmap‖ which represents positive attitudes of the Financial Service Agency towards the adoption of IFRS. The Business Accounting Council BAC, a key advisory body to the Commissioner of the Financial Services Agency FSA, approved the roadmap for the adoption of International Financial Reporting Standards IFRSs in Japan. Sir David Tweedie, Chairman of the IASB commented on announcement: this is a landmark decision, both for Japan and for IFRSs. For Japan, it signals the eventual adoption of IFRSs. For the IASB, adoption of IFRSs by the world‘s second largest national economy underscores the truly global nature of IFRSs and the acceptance of these standards by all major economies. In the Interim IFRS Roadmap, continuing convergence is emphasized. At the same time, the directions for Japanese GAAP are indicated, covering topics on issues concerning the application of IFRS in Japan and the required approach. These issues include optimal application and considerations for the mandatory application of IFRS in Japan, for example, scope and methods for mandatory application, treatment on non-consolidated financial statement and etc. One of the arguments for adoption of IFRS is that adopting IFRS can improve the comparability of accounting information and improve the transparency. The mission of IASB is to develop a single set of high-quality, global accounting standards that are accepted worldwide. Though IFRS provide possibility to improve the comparability, it should be noted that 2159 comparability should not be confused with uniformity as comparability means that like things should look alike and different things should look differentBarth 2008. It is obvious that there are major international differences existing in accounting practices and the possible causes of differences might not be completely deleted even if we adopt the international accounting standardsAlexander, and Nobes 2009. Therefore, IFRS, if to be adopted in Japan, must faithfully reflect the economic reality of businesses and trade practices in Japan, as well as the global financial and capital market. So the continuing convergence is still emphasized in the Interim IFRS Roadmap. On the other hand, though the interim IFRS Roadmap show a stance of acceptance of IFRS, there still left a lot of problems to be tackled including the above issues indicated in the report because of existing differences between IFRS and Japanese GAAP and the cause of the difference which may not be deleted entirely. As we know, accounting standards can be regarded as fully functional only if financial reports are appropriately prepared. Therefore, when the way of adoption, especially mandatory application is to be determined, the feature of Japanese accounting, the situation of Japanese companies, the difference between IFRS and Japanese GAAP, and other related issues should be understand, just as it is made clear in the Interim IFRS Roadmap: ……Japan must be prepared to take on the issue of mandatory application of IFRS from a broad range of perspectives, defining the path to be taken in the case of making the use of IFRS by a certain range of Japanese companies mandatory, while attending to the various aforementioned conditions in Japan and abroad……

4. The feature of Japanese accounting

In this section, we will analysis the major environmental factors that influence companies‘ accounting practices – to be specific, factors that directly influence the incentive to implement IFRS, the feature of Japanese accounting, and the major difference between IFRS and