The feature of Japanese accounting

2160 Japanese GAAP so that we can acquire an understanding of relevant issues which should be considered in making the final decision on whether and how IFRS should be required to be complied with. First, a large list of possible causes of international differences can be found in the writings of previous researchers e.g. Choi and Meek, 2005, Nobes C and R Parker, 2008. For example, the most frequently referred factors that might influence the accounting development are cultures, legal environment, providers of finance, taxation, profession of accounting profession and other external influences such as economic, political events and international influences. Though international influence seems to be the most influential factor which spurred the adoption of IFRS in a world wide scope, in both countries with a strong equity market and weak equity market, however accounting standards are not set to follow the fashion. Among all the above factors that affect accounting development, financing system, to be specific, the providers of finance, apart from international influences has been regarded as the main explanatory variable for the most important international differences in financial reporting. In countries, where capital provided by banks or family company is very important, the banks or family company may nominate directors and thus be able to obtain restricted information and to affect decisions. In this case, the need for published information is much smaller because of this access to private information. In other countries where the major source of corporate finance has been the share capital and loan capital provided by large numbers of private investors, especially foreign investors, there is relatively strong requires for unbiased information about the success of a business and its state of affairs. It is reasonable to assume that companies with different capital structures might have different opinion on IFRS. Japan seems to be a unique case. It has a fairly important equity market, although not as important as that in the US or the UK. Furthermore, many Japanese companies own shares in each other, and so the total number of listed companies and market value is exaggerated when making an international comparison. Thus, to understand the major finance resource of 2161 Japanese company and their perception on the importance of domestic and foreign equity market is a way to decide whether there is a need for mandatory adoption. Second, Japan accounting has both German and US features. The Japanese accounting system consists largely of a commercial code borrowed from Germany in the late nineteenth century, overlaid with US-style securities laws imposed in the late 1940s. Japan accounting standards are characterized as rule-based which are similar to U.S. GAAP, while contrast to IFRS which are characterized as principle-based. In converging an accounting standard to the IAS, there are t wo approaches: the―Principle based approach‖ and the ― Rule based approach‖. Under the former, the accounting standards are set based on general principles and the professional judgment of the financial statements makers while under the latter the accounting standards are set based on more detailed and clear rules. Continuing convergence with IFRS should solve the confliction between rule-base and principle-based accounting standards. On the other hand, complete adoption of IFRS might mean a change from rule-based to principle- based accounting standards which are assumed to have great impact on financial statement preparers. Third, the major difference in accounting standards between IFRS and Japanese GAAP are concerning recognition of revenue, RD, financial instrument, lease accounting and etc. These differences are rooted in basic accounting idea in the two set of accounting standards. The basic ideas of IFRS are principle-based, statement of financial position-focused, and fair value accounting, while Japan accounting are rule-based, attach great importance to income statements. While the resulting concrete differences in standards have different importance to Japanese companies, it is relevant to understand the relative importance of all the difference in accounting standards.

5. Investigation on manager‟s opinion on IFRS adoption

2162 With the above consideration in mind, we made a survey trying to acquire some knowledge on the necessity of adoption and possible problems concerning adoption from the view of financial statement preparers – in this paper, we refer to CFO and accounting managers of Japanese companies. In a postal questionnaire, we asked questions investigating their understanding of and attitude towards IFRS adoption and present situation of IFRS application in Japanese companies.

5.1 structure of investigation questionnaire

Since provider of finance is one of the most important factors that influence the accounting practice, it is helpful to know the capital structure and major finance sources of investigated companies. It is also relevant to understand how the accounting managers are prepared for adoption, for example to explore how important they think of the difference in accounting standards between domestic accounting standards and IFRS, how they prefer IFRS to be adopted, present adoption of IFRS in their company, the difficulties or other considerations that concerning the application of IFRS. Furthermore, as Japanese accounting are rule-based while IFRS are principle based, if IFRS is to be adopted, this contradiction should be relieved. It is also important to understand the accounting manager‘s opinion on principle-based and rule-based accounting because the character of accounting standards directly affects manager‘s judgment and their accounting practice. Therefore, our questionnaire was made up of four parts: 1 Major finance sources and users of financial statements 2 attitude towards and opinion on the adoption of IFRS 3 the present situation of IFRS application 4 The convergence approach of accounting standards

5.2 Sample selection and collection of responses