Japanese

ACCOUNTING FORUM

2007

No. 15

JAPAN ACCOUNTING ASSOCIATION

Japan Accounting Association.
Liaison Office: Hayashi Building, 1-10 Kanda Nishiki-cho, Chiyoda-ku,
Tokyo 101-0054, Japan
Copyright© 2007, Japan Accounting Association1

Japanese ACCOUNTING FORUM 2007
JAPAN ACCOUNTING ASSOCIATION

Preface

Japanese ACCOUNTING FORUM of Japan Accounting Association (JAA) is
published annually to publicize academic activities of JAA in English.
The first issue of Japanese ACCOUNTING FORUM was published in 1993.
This edition for 2007 is the 15th issue of Japanese ACCOUNTING FORUM.
Past issues were published in the form of hard copy. This is the first timethat Japanese ACCOUNTING FORUM is put on the website of JAA.
This issue contains the summary of presentations at the 65th Annual
Conference of JAA which was held at Senshu University in Tokyo on
September 6-8, 2006. It also includes the reports of regional activities of
JAA during the 2006 academic year.
I sincerely hope that Japanese ACCOUNTING FORUM serves the readers
to better understand the activities of JAA.
Kazuo Hiramatsu
Chairman of the International Committee
and Managing Editor
Japan Accounting Association

Contact:

Professor Kazuo Hiramatsu
School of Business Administration
Kwansei Gakuin University
1-1-155 Uegahara, Nishinomiya, Hyogo 662-8501, Japankhira@kwansei.ac.jp2Japanese ACCOUNTING FORUM 2007
The 2007 Editorial Board

Managing Editor:
Kazuo Hiramatsu, Kwansei Gakuin University
Deputy Managing Editor :Hiroyasu Yurikusa, University of Hyogo
Editors:
Akihiro Noguchi, Nagoya University
Norio Sawabe, Kyoto University
Takashi Yaekura, Hosei University
Koji Kojima, Kwansei Gakuin University

3

Past Editors of the Japanese ACCOUNTING FORUM :1993 - 1997
Seigo Nakajima, Managing Editor, Ferris University
Yukio Fujita, Deputy Managing Editor, Aichi Gakuin University
Youichi Hara, Ritsumeikan University
Kazuo Hiramatsu, Kwansei Gakuin University
Toshiro Hiromoto, Hitotsubashi University
Yoshiaki Jinnai, Tokyo Keizai University
Yoshihide Toba, Senshu University
1998 – 2000
Nobuo Kamata, Managing Editor, Chubu University
Kazuo Hiramatsu, Deputy Managing Editor, Kwansei Gakuin University
Tokugoro Murayama, Deputy Managing Editor, CPA
Shinji Hatta, Surugadai University
Akihiro Noguchi, Nagoya University
Yasuhito Ozawa, Senshu University
Shigeto Sasaki, Senshu University
Kazumasa Takemori, Chubu University
2001 – 2003
Nobuo Kamata, Managing Editor, Chubu University
Kazuo Hiramatsu, Deputy Managing Editor, Kwansei Gakuin University
Shinji Hatta, Surugadai University
Norio Igarashi, CPA
Noriyuki Konishi, Senshu University
Akihiro Noguchi, Nagoya University
Michimasa Satoh, Nogoya University
Kazumasa Takemori, Chubu University
2004 – 2006
Michiharu Sakurai, Managing Editor, Senshu University
Kazuo Hiramatsu, Deputy Managing Editor, Kwansei Gakuin University
Yukio Sakaguchi, Senshu University
Hironao Iwata, Tokyo International University

4

JAPAN ACCOUNTING ASSOCIATION

Japanese
ACCOUNTING FORUM
No. 15, 2007
CONTENTS

PrefaceKazuo Hiramatsu(2)

ReportMichiharu Sakurai (7)Plenary Sessions
Plenary Session 1:

The New Corporate Law and Accounting Standards

The New Corporate Law and Accounting Standards in Japan-- Distinction between Capital Surplus and Earned Surplus -Katsunobu Mandai (9)The Acceptance of Accounting Standards in the New Corporate Law in Japan
Masao Yanaga (10)The New Corporate Law and Development of Accounting Standards in Japan
Kenichi Akiba (11)Plenary Session 2 :Management Accounting for Service Industries

Essentials of Cost Accounting in Service Industries inferred from Healthcare Sector
Ko Arai (12)A Study on Usability of Management Accounting Information in Human Service
Industries
Akimichi Aoki (13)Possibilities of Fixed-Revenue Accounting
Kenichi Suzuki (14)Plenary Session 3 : Establishing the System of Internal Control

5Internal Control Audit - Tasks for AuditorsSeno Tezuka(15)

Fundamental Issues for Establishing an Internal Control Audit
Yoshinao Matsumoto (16)
Challenges and Perspective on Internal Control Reporting System- From a View of the Position Monitoring Internal ControlShinji Hatta (17)Special Committees

Research on Business Organization and Management Accounting
Toshiro Hiromoto(18)

Yoshimasa Tomosugi(19)Study on the Reliability of Financial Information

Subject Research Committee
Empirical Research on Accounting: Implications for Future Accounting Institution
Kazuyuki Suda (21)Study Groups
A study on the Structure and Functions of Double-Entry Bookkeeping
Tsuneo Nakano (23)Change of Accounting Society and Market Logic
Yukiharu Kurokawa (24)Regional Reports
Hokkaido Region
Tohoku Region
Kanto Region
Chubu Region
Kansai Region
Kyushu Region

Yuji Yoneyama
Yoshio Hosaka
Yukiharu Kuroka
Akihiro Noguchi
Atsushi Shiiba
Chikako Ozu

6

(27)
(27)
(28)
(30)
(31)
(31)

2007 Annual Conference of JAA
Report2006 Annual Conference
Chairman of 2006
Annual ConferenceMichiharu Sakurai
Senshu University

Program
The 65th Annual Conference (2006) of the Japan Accounting Association was
hosted by Senshu University (Kanda main campus) from September 6 through 8, 2006.
The main theme was The New Era of Accounting Research.
On September 6, meetings of the Council and of the General Assembly ofMembership were held, and soon after those, two Special Committee research reports,
one Special Subject Committee research report and two Study Group research reports
were presented. An election for President, Councilors, and examiners of the ResearchAward was done on the same day.
On September 7, before the sessions of the main theme, concurrent sessions
were held. One session was devoted to invited presentations by six Korean
researchers. Fifty eight reports on various themes were presented at the other sixteen
sessions. At the session of the main theme mentioned above, three plenary sessions
were held where New Corporation Law and Accounting Standards, Management
Accounting for Service Industry, and Institutionalization of Internal Control werediscussed and four reports were given at each session. Commemorative presentation
open for nonmembers was conducted by both Ryuji Takeda, ex-president of the Japan
Accounting Association on New Corporation Law and Seiichi Shimada, Governor atGovernment Housing Loan Corporation of Japan on Reform of Government Housing
Loan Policy.
On September 8, before the panel discussions of the plenary sessions, sixty tworeports on various themes were presented by the members at the concurrent sessions.
After that, the panel discussions of the two plenary sessions were held very actively
among many participants.
A banquet was held in the evening on September 6 at The Hotel Grand Palace inTokyo. Six hundred and fifty members and nonmembers enjoyed the friendly party.
During these three days of sessions, more than eleven hundred participants
7

attended the meetings and actively participated in the discussions.
this year was a great success, even more than we had expected.
The schedule of the convention was as follows:
EventsScreening Committee of Awards
Sep. 5Preliminary Meeting of the Election
Administration Committee
Meeting of the Board of Directors

The convention of

Date and Time
13:00-15:00
15:00-16:00

VenuesSenshuUniversity

16:30-18:30

Meeting of the Council
Meeting of the General Assembly
Of Membership
Study Group Reports
Special Subject Committee Report
Special Committee Reports
BanquetSep. 6

10:00-12:00
13:00-14:30

Concurrent Sessions
Plenary Sessions
1 New Corporation Law andAccounting Standards
2 Management Accounting
for Service Industry
3 Institutionalization ofInternal Control
Concurrent Sessions
Panel discussion
1 New Corporation Law andAccounting Standards
2 Management Accounting
for Service Industry
3 Institutionalization ofInternal Control

Sep. 7

9:30-12:00
13:00-16:00

Grand Palace(Hotel)SenshuUniversity

Sep. 8

9:30-12:00
13:00-15:30

SenshuUniversityD

14:40-15:20
15:35-16:15
16:20-17:45
18:30-20:30

8SenshuUniversity

2007 Annual Conference of JAA
Plenary Session 1 :The New Corporate Law and Accounting Standards

The New Corporate Law and Accounting Standards in Japan– Distinction between Capital Surplus and Earned Surplus –Katsunobu Mandai
Hitotsubashi University
The new Corporate Law has been enforced in Japan from May 1st, 2006. One of
the major differences between the new Corporate Law and the traditional Commercial
Code is there treatment concerning distribution of profit. The new law doesn’t
distinguish disbursement of capital to distribution of profits. Therefore, some people
argue that there is no need to distinguish capital surplus and earned surplus recorded ina balance sheet. This paper conducts a historical review of the distinction between
capital surplus and earned surplus in the US and in Japan and discusses needs for this
distinction from an accounting viewpoint.
It has been long claimed both in the US and in Japan that there are fundamental
differences between capital surplus and earned surplus. It has been argued and become
established rules that earned surplus may be distributed to outside the company, but
capita surplus must not.
This paper points out several possible reasons for the necessity for the distinction
from accounting viewpoint. First, one of the characteristic of accounting is that
accounting is historical documents based on book-keeping. Capital section in a balance
sheet reflects not only a static feature of a firm at the end of a year but also shows
historical changes about the firm from its birth to present. Second, the distinction is
helpful for financial statements users. If capital surplus and earned surplus are mixed,
these users will have difficulty in making decisions about the company’s dividend
policy and its financial strength. Third, the distinction is needed for lending agreements.
If lending agreements contained restrictive covenants to restrict dividend payout lessthan an amount of retained earnings, it is difficult to measure the amount that the firm
can pay. I believe these reasons support the distinction between capital surplus andearned surplus in a balance sheet.

9The Acceptance of Accounting Standards in the New Corporate Law
in Japan
Masao Yanaga
University of Tsukuba
The Article 431 of the Corporate Law of 2005 states that accounting forcorporation shall be done in accordance with fair and reasonable generally accepted
accounting practices. Similarly, the Article 3 of the Regulation on Company Accounts
stipulates that accounting standards as well as other fair and reasonable generally
accepted accounting practices should be taken into consideration in interpreting andapplying the Regulation.
These provisions represent major milestone with regard to the relationship between
accounting standards and companies legislation in Japan in a sense that accounting
standards are now explicitly recognized in the Corporate Law where in the old
Commercial Code are not.
Though ‘fair’ in the context of ‘fair accounting practices’ had been substantial
concept under the Commercial Code, the notion of ‘generally accepted as fair andreasonable’ is not very clear under the new Companies Law. Accounting standards
issued by a generally accepted accounting standards setter may be described as‘generally accepted as fair and reasonable’. In addition, which accounting standards
are and whether the US GAAP and/or IAS/IFRS are considered as ones generally
accepted as fair and reasonable in the Companies Law is still open for discussion.

10

The New Corporate Law and Development of Accounting Standards
in Japan
Kenichi Akiba
Accounting Standards Board of Japan
This article introduces backgrounds and outline of new accounting standards
developed by the Accounting Standards Board of Japan (ASBJ) in connection with the
new Corporate Law in Japan. In addition, the relationship between new Corporate Law
and development of related accounting standards are discussed. The relationshipbetween the two can be characterized as reciprocity or interacting and is discussed in
the paper in the context of convergence of accounting standards among the world andalso in the context of appropriation of retained earnings.
Issues of scope and measurement of the direct transactions with shareholders arealso discussed in this article. In the area of accounting, profit is acknowledged as
performance created by using equity, which is deemed as a principal of an investment.
In that sense, profit and equity that excludes the direct transactions with shareholders
from profit recognition, should be clearly distinguished
Although new accounting standards clarifies that change of equity account islimited to the transactions directly made with shareholders, it may be not clear who isthe shareholders or the potential shareholders and how the direct transactions with theshareholders are measured. Profit recognition for accounting purposes depends uponnature or substance of transaction, which is not only made with parties outside of anentity but also directly made with its shareholders.

112007 Annual Conference of JAA
Plenary Session 2 :Management Accounting for Service Industries

Essentials of Cost Accounting in Service Industries
inferred from Healthcare Sector
Ko Arai
Osaka City University
Traditionally, essentials of cost accounting in service industries as a whole havebeen discussed. However, few have been working on finding essentials in a specificservice industry, and fewer have tried to infer essentials in service industries as a wholefrom the findings.
In this presentation, usefulness of cost accounting for each purpose in healthcare
sector (a biggest/representative service sector) is discussed and compared withtraditional discussions for service industries as a whole. In healthcare sector, costaccounting has usefulness for standard cost management, short-term profit planning,and preparation of financial statements, although traditional researches have concluded
cost accounting have no usefulness for these purposes in service industries. Thisdifference comes from different ideas between traditional researches and mine withrespect to characteristics of service, relationships between the characteristics and bothratios of variable/fixed cost & direct/indirect cost, and appropriateness ofstandard/direct costing under the characteristics. These different ideas are due to thedifference of discussion levels (present situation vs. essence) and the difference ofdates studied (70-80s vs. 2000s) in addition to the difference of fields studied (service
industries as a whole vs. healthcare sector). Intensive researches for specific service
sector and generalization for service industries are required just like researches for
manufacturing industries.

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A Study on Usability of Management Accounting Informationin Human Service Industries
Akimichi Aoki
Senshu University
Many human service industries are capacity-constrained industries. As capacity isrelatively fixed and inventory is perishable in capacity-constrained industries, theapplication of yield management (also called ‘revenue management’) is effective. The
measure ‘yield’ means RevPATI (Revenue per available time-based inventory), and iscomputed by multiplying occupancy rate with average daily rate. To increase yield,
both occupancy rate and average daily rate should be increased simultaneously.
There are two versions of yield management. Static yield management means pricedifferentiation. Dynamic yield management implements continuous price manipulationin response to customer booking profile. However, this measure has one defect.
Increasing yield does not necessarily leads to increasing profit. To link yield with
contribution margin, yield should be computed by multiplying average contribution
margin by occupancy rate. The figure of yield can be broken down into customer
segments by using customer segment’s occupancy rate. Also, we can obtain useful
information by attributing fixed costs to customer segments based on customer
segment’s occupancy rate. Customer segments which had high yield but had low
operating profit can be found. This is useful for the purpose of performancemeasurement. Also, the timing of price change can be found. This is useful for the
purpose of decision making.

13

Possibilities of Fixed-Revenue Accounting
Kenichi Suzuki
Meiji University
Fixed revenue is defined as revenue from regular customers. Fixed-Revenue
Accounting (FRA) is a new accounting method using fixed revenue concept toevaluate the financial effect of the regular customers.
This study examines possibilities of FRA through applying FRA to a large retailstore as well as to a hotel chain. These action researches show four possibilities of
FRA. First, FRA has the possibility to clearly show the difference of the profitability
between regular customers (RC) and non- regular customers (NRC). Second, FRA has
the possibility to show the factors of keeping the profit from RC: In the large retailstore case, the differences analysis, in terms of contribution margin between RC and
NRC, led to finding important sales items. Third, FRA has the possibility to show how
regular customers contribute to the profit growth. Fourth, FRA has the possibility toshow the influence of RC to the stability of the profit: In the hotel chain case, thedifference between contribution margin from RC and fixed expenses led to evaluating
the stability of the profit.

14

2007 Annual Conference of JAA
Plenary Session 3 :Establishing the System of Internal Control

Internal Control Audit - Tasks for AuditorsSeno Tezuka
CPA, Tohmatsu
I believe it is important to point out issues that auditors are facing, related to newly
introduced internal control audit regulations in Japan. Current audit practices by
independent auditor also includes an assessment of internal control as a part of audit
approach, however assessment of internal control audit under the newly introduced
internal control audit brings new tasks for auditors.
Auditors’ tasks regarding the new internal control audit can be summarized asfollows:
1. Direct-reporting method, in which auditors are not required to comments “directly”
on effectiveness of corporate internal control but instead comments on reliability ofinternal control reports prepared by corporate managers. Nevertheless, auditors
have to obtain audit evidences directly related to internal control for preparation of
an audit opinion. Scope of audit evidences and depth of audit approach are tasks
that auditors will face.
2. Internal control audit targets on internal control over financial reporting. The rangeof financial reporting to be audited is another issue that carefully examined.
3. Material standard for material weakness.
4. Auditors need to evaluate how internal control mitigates risk from supposed risk.
5. Inherent limitation on internal control and its relation between audit opinions.
6. Can auditors recommend specific corrective actions for internal control issues
without violating their independent position?
7. Going concern opinions and internal control audit.
8. Integrating financial statement audit and internal control audit.

15

Fundamental Issues for Establishing an Internal Control Audit
Yoshinao Matsumoto
Kansai University
Since June 7, 2006, the Financial Instrument Trading Law has been imposed listedcompanies to prepare an internal control report and submit its audit report byindependent auditor. The Corporate Law, which was enforced on May 1 of the same
year, prescribes an obligation to construct an internal control system and the Corporate
Law Implementing Regulations lists internal control items which should be adopted bymanagement to examine adequacy of his/her business. We had the same premise
regulation on an internal control as that was introduced in July 2002 as the US SOX
s404. In this paper, I examined an historical transition of internal control concept and a
relationship with the business risk oriented audit approach.
Consideration of internal control concept was aroused from the fact that an auditor
tried to utilize an assessed internal control system of a company which was establishedby management for reasonable execution of business, as a part of audit evidence.
Subsequently, the internal control system came to become much more important inorder to secure the fairness of financial report, partly because of recent accounting
scandals in the US and its byproduct, the COSO report. Management’s report ofinternal control and an audit on such report are influenced by an assessment of control
risk in present audit risk approach.

16

Challenges and Perspective on Internal Control Reporting System- From a View of the Position Monitoring Internal ControlShinji Hatta
Aoyama Gakuin University
The Subcommittee on Internal Controls, under the Business Accounting
Deliberation Council of the Financial Services Agency, issued a proposal for“Evaluation and Auditing Standards for Internal Control over Financial Reporting” inDecember 2005. After the announcements of the draft, the Financial Instruments andExchange Law was enacted in June 2006, to implement “legislation for evaluating acompany’s system ensuring the accuracy of financial statements and other financial
information,” the so-called internal control reporting system.
Some people seem to mistakenly argue that a task will be introduced as same as the
US practices of internal control, since this system is quite resembled to the mandatory
reporting of internal control enforced by the US Sarbanes-Oxley Act (SOX) s404. The
Japanese version of internal control reporting system will have its unique features
including uniform applications of the system to all public companies, and therefore
will not be a simple copy imported from SOX s404.
Under such internal control reporting system, each company must have a process tocontinuously evaluate its internal control system, and to maintain and to operate
effective internal control. The key of this process is monitoring, one of the components
of internal control, which typically has two aspects; “ongoing monitoring” and“separate evaluations”. In this paper, I discussed the challenges to insure effective
internal control, and also considered a perspective of the internal control reporting
system which will start shortly in Japan from a view point that monitors internal
control.

17

2007 Annual Conference of JAA
Special Committee

Research on Business Organization and Management
Accounting
Chair: Toshiro Hiromoto
Hitotsubashi University
Traditional management accounting was generated due to theemergence of the modern industrialized firms and developed in parallelwith the expansion of the business organizations in the United States. The
management accounting models from the US have been introduced to andimplemented in Japanese companies and adapted to their own
organizational environment. Some models such as target costing and micro
profit center have been created uniquely in Japanese organizations. The
purpose of our study is, based on the fact that management accounting has
been emerged and evolved in the business organizations, to address thefollowing two issues:
1. Tracing the history of the evolution of management accounting
2. Studying on the characteristics of modern business organizations
and the modern management accounting
Management accounting research has been organized based on therelevance, which was represented by the words, “different costs for different
purposes.” But today, it is found out that the implementation of the relevant
management accounting systems was not always successful, and theimplementation studies have increased. It is true that the implementation
study could be seen as being in its early stage, but our study covers theprocess of the system emergence as well as the implementation process. And
we add the perspective on the integration of and interdependence among
management accounting systems. The keywords of our study arecross-penetration of market and organization, empowered autonomous

18organizations, evolution, flexible specialization, micro-macro-loops and soon.
The figure below indicates our whole concept of management accounting
and reflects our concern that the management accounting systems
differently function in different organizations.

Management
philosophy
Management system
Business organization
StrategyManagement Control System
Management
Accounting

Business environment

Special Committee
Study on the Reliability of Financial Information
Chair: Yoshimasa Tomosugi
Nagoya University
The aim of this special committee is to identify the function of “quality ofearnings” and “quality of audits” in the reliability of accounting andauditing, which are seriously affected by the recent accounting and auditing
scandals in Japan. Three important players in our study are; 1) corporate
management who creates and releases financial information in accordance

19with the accounting standards, 2) investors who receive and use it, and 3)
auditors who assess it as the independent party.
Three perspectives construct this research project. They are: 1) the
research on the relation between the reliability of financial information andthe reliability of auditing, 2) the theoretical research on the reliability offinancial information, and 3) the empirical research on the reliability offinancial information.
First, we analyzed the concept of “the reliability of financial information.”
Although IASB/FASB joint project for the conceptual framework seems toreplace the word, “reliability” by “faithful representation,” we explained thestructure of reliability of financial information and the reliability in termsof measurement and communication in accounting.
Second, we pointed out many types of reliability for activities of anorganization for the accounting system and financial information, and thenecessity to specify their levels and position properly. And we explained that
disclosure of other comprehensive income was meaningful for securing
reliability of financial information about fair value measurement. In
addition, we examined the meaning of “revenue and expense view,” “asset
and liability view,” and “fund view” as an accounting views, and laid out thepositioning of cash flow statement in respective views.
Third, we pointed out the importance of the independence of thestandard-setting body, which means that it should set accounting standards
reflecting the reality of corporate activities to propose reliability of financial
information. The increasing uses of the present-value method andcomplicated calculation methods provide management with wider options
for judgment which may induce fraud.
Fourth, as for the relation between the reliability of financial
information and auditing, we conducted research on the need for reviewing
the quality control of auditing and internal control of accounting firms, andclarified whether the accounting scandals and window dressings werecaused by the defect of the risk-based approach in auditing or by the lack of
independence and professional ethics.
Finally, we sent out the questionnaire to 1,636 companies listed at theTokyo Stock Exchange, in order to figure out the present situation of thebelief or understanding of the Japanese people in practice. And ourrecommendations to improve the reliability of financial information in
Japan are as follows; 1) standard-setting body should supervise and monitor
the reliability of financial information for public interest, 2) corporate
management should positively do IR activities including qualitative
information, 3) independent auditors should try to secure the reliability of20

auditing to eliminate expectation gaps, and 4) information users should pay
attention to the reliability of financial information from the standpoint of
the investors who assume self-responsibility.

Subject Research Committee
Empirical Research on Accounting: Implications for Future
Accounting Institution
Chair: Kazuyuki Suda
Waseda University
Subject Committee of Japanese Accounting Association was organized on
September 2004. The subject to study is “Empirical Research on Accounting
to Provide Implications for Future Accounting Institution.” The committee
pointed out specifically issues of conceptual framework of accounting,individual accounting standards, Japanese Corporate Law related tobusiness accounting, conformity rule of tax with accounting, and quality ofauditing.
Discussing a way out of the issues, the committee performed twelve
empirical studiees from 2004 through 2006 to provide implications for
future accounting institution, i.e., (1) relevance and reliability of financial
accounting information, (2) relative and incremental explanatory power of
dirty surplus for debt interest rate, (3) value relevance of the multi-stepincome statement, (4) relationship between flexibility of the accounting
standard by retirement benefit plans and management accounting choice,(5) value relevance of the accounting loss information, (6) value relevance ofthe estimated liabilities required by the industry law, (7) relationshipbetween audit quality and internal control, (8)information content of net
income and comprehensive income, (9) value relevance of deferred tax
assets, (10) relationship between retained earnings ratio and debt contract,(11) accounting for long-term construction contract and its information
content, and (12) value relevance of earnings including gains from lapse of
warrants. The committee provided some ideas to improve future accounting
institution based on the results of the empirical studies.
The committee collected these studies and published two reports. One is21written in Japanese. The other one is written in English. The Japaneseedition consists of six parts, 21 chapters. The English edition consists of five
papers, i.e., the second, third, seventh, and eighth papers in the previous
paragraph, and the paper contributed by Professor Douglas J. Skinner of
the University of Chicago. The second, third, and seventh papers were
accepted for presentation at the 29th Annual Congress of European
Accounting Association. Professor Suzuki, Professor Otomasa, and Suda
presented the papers on March 2006. The eighth paper was accepted forpresentation at 7th Annual Congress of Asian Academic Accounting
Association. The committee had a workshop on February 2006, cosponsoredby Osaka University of Economics (Chaired by Kazuo Kato), and Professor
Skinner presented a paper, which is included in our report.
Below are summaries of the above second and third research. These are
selected due to space limitation.
Relative and Incremental Explanatory Power of Dirty Surplus for Debt
Interest Rate
This study investigates the relationship between dirty surplus items on
the balance sheet and the cost of debt for Japanese firms. The research
focuses on three dirty surplus items, i.e., the unrealized gains and losses on
the available-for-sale securities, the foreign currency translation
adjustment, and the land revaluation surplus. By using the Vuong (1989)
test, the paper evaluates the relative explanatory power of equity ratio withand without dirty surplus items for interest rate spread of bonds issued.
The paper presents that the equity ratio excluding dirty surplus items ismore strongly associated with the interest rate spread than that including
dirty surplus items. The results suggest that the total amount of dirty
surplus items have no explanatory power for interest rate of bonds issued.
However, the paper finds that some items of dirty surplus have the relativeand incremental explanatory power for bond interest rate.
Value Relevance of the Multi-step Income Statement in Japan
The paper investigates the relationship between value relevance of themulti-step income statement and managerial opportunistic behavior. In
Japan, net income is disclosed by three steps, i.e., 1) operating profits fromcore operating activity, 2) ordinary income, measured by adding gains andlosses from non-core operating and financing activities to operating profits,
and 3) net income that is bottom line performance in the income statement.
While Japanese firms achieve income smoothing, loss avoidance and bigbath, the managerial opportunistic behavior is simply identified by the22observation of multi performance measures. The paper finds that the firms
engaged in such earnings management have the different value relevance of
earnings from other firms. In many cases, earnings management decreases
the value relevance of earnings.
I am honored that we are able to publish research reports including
their paper. I thank Japan Accounting Association and acknowledge thefinancial support from ‘Sangyo keiri kyokai’ on behalf of the committee.

Study GroupA study on the Structure and Functions of Double-Entry
Bookkeeping
Chair: Tsuneo Nakano
Kobe University
The environment around the record keeping function in accounting haschanged radically, mainly due to communalization. Double-entry
bookkeeping, however, seems to remain to be the only means of recording
accounting transactions in many educational institutions. Most businessorganizations keep accounting records using computers and few keep
traditional pen-and-book style records. There is some gap between
recordkeeping in school and that in practice. Thus, one question arises:
should we change our notion about bookkeeping?
One approach to the question is to investigate it functionally. The
purpose of the study group is to make clear the structure and functions ofdouble-entry bookkeeping. The final report, titled “The Structure andFunctions of bookkeeping,” became available in September 2006. In thatreport, we deliberated on three topics about bookkeeping: past bookkeeping,present bookkeeping, and future bookkeeping.
1. Present bookkeeping.
Based on the questionnaires returned last year, we conducted additional
investigation on the notion of bookkeeping. First, we examined therelationship between the attributes of the respondents and their answers.
Second, text-mining analyses were conducted on the morphemic words, i.e.
nouns, shown in the definitions of single- and double-entry bookkeeping,23

and their differences. Third, to show the correlations among answers, weprepared cross tabulations for some combinations of questions. From theseprocedures we reached an overall image of the single- and double- entry
bookkeeping, and to make this image clearer, we conducted interviews with
two outstanding theorists on bookkeeping.
2. Bookkeeping in the past
We also examined the notion of the bookkeeping in the past by
surveying the textbooks published in some areas and countries in the past.
First, we surveyed the textbooks in Britain in the eighteenth andnineteenth centuries and concluded single-entry bookkeeping should be
examined with more emphasis. Then, similar approach was adopted on thebooks published in Japan in the Meiji period and those in Korea. Exploring
the development of bookkeeping in public sector in the United States was
also examined.
3. Bookkeeping in the future
The last question is what bookkeeping will be in the future. The
conclusion was drawn from its development over centuries and recent
computerizing technology. First to be examined is XBRL (eXtensible
Business Reporting Language), based on XML technology, and we concluded
that XBRL itself will not change the framework of double entry, but it will
enrich the record of transactions by filling many additional information into
the records. So what the bookkeeping in the future will be? One possible
direction is that records become single-entry with a lot of supplementary
information and general.
The final report does not attempt to unify the opinion of the members
partly due to the time allowed. But each chapter contains valuable opinionsof us and we hope this study would be a foundation for the further
development of the study of bookkeeping.

Study Group
Change of Accounting Society and Market Logic
Chair: Yukiharu Kurokawa
Keio University
The issues underlying this theme are as follows.
1. Market logic and capital market quality24

It is often found that behaviors of participants in capital
markets have been moving from investment to speculation. At thesame time, the flow of borderless capital in capital markets all over
the world has been intensifying.
The usefulness of accounting information is usually verified bystatistically measuring the impact that accounting information has
on stock markets. Here, however, a question arises whether thequality of a market itself can be an issue or “if the nature ofaccounting information should change according to the level ofmarket quality.”
Market quality is closely related to the feasibility of “market
logic.” A major determinant of market quality is the quality ofcompetition in the market. The quality of competition in themarket depends on nondiscrimination in rules (i.e. applying thesame rules to all market participants) and information transparency(i.e. the same information is available for all market participants).
2.

Evaluation model of enterprises and reactions by markets
How has the management of companies leading the economic
society been changed by market integration, drastic development of
information environments, and stricter internal controls? At thesame time, has the meaning of corporate value been changed?
A theoretical figure of the corporate value that individual
investors perceive of the company they may invest in is createdbased on the combination (corporate rating) of a corporate
assessment model and information required by the model. Thus, it isnecessary to identify the corporate assessment models that are
actually used in the market.

3.

Audit explosion and audit society
One of the changes in the accounting world that can be thephenomenon called “audit explosion - audit society.” In Japan, this isexemplified by the fact that there has been a spread of auditing or
similar activities such as inspection, examination and verification in
the society. This is exemplified not only by the increase auditing in
profit-making enterprises, but also the auditing of national and local
governmental/public organizations conducted by the Board of Audit,
performance examination of non-profit organizations such as
hospitals and universities, and the assessment of environmental
activities of both profit and non-profit organizations. Michael Power25

calls this situation “the audit society.”
Characteristics of the society, the wide spread of coverage that
audit/assessment is applied and unclear judgment of audit quality itself arebriefly described by the following statements: “black boxing of audit
contents,” “determining audit quality by inspecting the audit process,” and“audit report as a meaning of a reassuring label.” Then we need toinvestigate actual situations on the question, “how the audit society has
been changing in Japan.”(1)4. Change of accounting profession and management of auditing firms
When we pay attention to the change that the major part of recent audit
practice is merely office work to develop audit work papers and the work
environments of young accountants, who are now no more than employees
of a large auditing firm, an issue emerges called “laborization of theaccounting profession.”
Focusing on the shift of the nature of accounting profession from
specialist to manager and laborer, in other words, the disappearance of theaccounting profession, leads us to raise a research issue “examination ofmanagement of audit firms.” This includes research of “various issues ofgeneral corporate organization applying to auditing firms such as corporate
manager’s governance, labor management, employment and promotion,
salary system and incentive/compensation issues, development of humanresources, organizational culture and loyalty to the organization thatshould be particular to each organization.”(2)5. Spread of corporate accounting techniques among public sector and its
impact
It has been pointed out that there is inefficiency among variousorganizations belonging to the public sector (national, local
governments, independent administrative agencies, etc.) and delayof accounting system, which plays a role in causing the inefficiency.
In response, corporate accounting techniques have been introduced
into the public sector leading to wider use of assessment techniquesof profit-making organizations. What is the expansion and limit of
the role of accounting information and disclosure in the public
sector?
Note: (1) Michael Power “The Audit Society: Rituals of Verification”, 1997.
(2) Robin Roslender “Sociological Perspectives on Modern
Accountancy”, 1992.
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2007 Annual Conference of JAA
Regional Reports
Hokkaido Region
Yuji Yoneyama
Hokkaido University
The regional meetings were held in 2006 as follows.
1. The 69th Regional Meeting (May 20, 2006) at Hokkaido University(1) “Role of Postscript Information and the Problem,” Zhang Junsong, Hokkaido
University(2) “The Empirical Analysis between Management's Discipline and Severance
Benefit,” Yuzuru Sakurada, Hokkaido University(3) “Corporate Disclosure in the Securities Acts,” Jun Hiyama, Sapporo University.
(4) “Developments and Problems of Public Sector Accounting in Japan,” Shinichiro
Ishizaka, Hokkaido College, Senshu University
2. The 70th Regional Meeting (November 11, 2006) at Hokkaido University(1) “A Study on Going Concern and Financial Statements Audit: The Situation ofAmerica in the 1980's,” Satoko Fujioka, Hokkaido University(2) “Consideration about opaque accounting system of Japan: The Issue of Tokyo
Stock Exchange about Inadequate and Insufficient Capacity of Surveillance,”
Kouki Hamada, Kushiro Public University of Economics(3) “Effect of Leases by Impairment Accounting Standards,” Katsuhiro Yoshida,
Asahikawa University
A lively discussion was held among the participants in each presentation.

Tohoku Region
Yoshio Hosaka
Tohoku Gakuin University
The Tohoku Region of the Japan Accounting Association covers the north eastern(Tohoku) area of the main land.
In 2006, following three meetings were held.
27

1. The 70th Meeting (June 17, 2006) at Fukushima University(1) “On Empirical Research on the Keeping and Using of Accounting Data in
Smaller Companies in the Ishinomaki Area,” Shinsuke Tamura, Ishinomaki
University(2) “The Accounting Treatment of Emission Rights,” Hideki Shibata, Hirosaki
University
2. The 71st Meeting (November 19, 2006) at Yamagata University(1) “A Study on ‘Net Assets’ Concept in Corporate Law,” Hiroshi Ootsu, JuniorCollege of Aizu
(2) “On the Quarterly Disclosure and the Assurance of Reliability,” Kazuyuki
Ichimura, Niigata University of Management(3) Special Speech: “Reviewing a Work of Mine over Thirty Years: Evolution of
Cost Accounting at Nagasaki Shipyard.” Yoshikazu Toyoshima, Ishinomaki
University, Professor Emeritus at Tohoku University

Kanto Region
Yukiharu Kurokawa
Keio University
The 54th Kanto Conference of Japan Accounting Association was held at the Mita
campus of Keio University on December 9, 2006. About 200 people participated in theconference.
Theme: “The future of accounting/auditing world – What accounting/auditing would
be or should be in 10 years?”Moderator: Yukiharu Kurokawa, Keio University.
［Selection of the theme and its background］
1. Change of Capital market quality
It is often found that behaviors of participants in capital markets have been movingfrom investment to speculation. At the same time, the flow of borderless capital incapital markets all over the world has been intensifying. In response to these
movements, we would like to forecast what the quality of a capital market and the roleof accounting information would become or should become.
2. Evaluation model of enterprises and reactions by markets
How has the management of companies leading the economic society beenchanged by market integration, drastic development of information environments andstricter internal controls? At the same time, has the meaning of corporate value been28

changed? In the future, what is the desirable accounting for management(administration) that contributes to assessment of corporate value?
3. Subjective forecast and the change of accounting information
In the process of preparing accounting information, subjective forecast of future
events/phenomena has been increasingly needed. Forecast of future events/phenomenarequires assessment of prospective outcomes of multiple possible future
events/phenomena and incidence rate of each event/phenomenon. Here, a question
arises in accounting whether representative values should be indicated as expectation
using occurrence probability distribution or mode, and if a measured value (=representative value) should be corrected by the amount of the risk premium in order toreflect the breadth of the distribution (= risk) or not.
4. Change of accounting profession
It has been pointed out that there is a decline in auditor’s ethics in auditing process,which secures the reliability of accounting information. What is the future picture of
the accounting profession and what should regulation of auditing firms and auditing
practices be?
［Individual presentation and summary of discussion］
1. “Perspective on the Controversy over Depreciation vs. Impairment of Goodwill,with reference to the Strategic Management Theory of Sustainable Competitive
Advantage,” Satoshi Daigo, The University of Tokyo
2. “How to Evaluate the Uncertainty within Corporate Accounting,” Mitsuru Iwamura,
Waseda University
3. “Contribution of Research on Corporate Reputation to Accounting – Based on
Historical Approach of Future Research Prospects,” Michiharu Sakurai, Senshu
University
4. “Recent Changes in the Environment of Audit and the Future,” Akira Kaneko,
Certified Public Accountants and Auditing Oversight Board
After 4 presenters’ presentations on their own specific subjects, the following
points were discussed.
- Of external environments surrounding present companies (capital market, productmarket, labor market, etc.), on which environmental changes did individual
presenters focus?
- What are individual presenter’s views on the relationship between change incorporate management and accounting/audit?
- How do individual presenters define and attempt to measure corporate value?
- Is audit sufficiently responding to increasingly complicated/internationalized
corporate activities?
- Is effective organizational management implemented in auditing firms(accounting firms) themselves?
- In the process of discussing accounting standards, does academic research of29

accounting fully consider environmental factors of corporate management andchanges of economic transactions?

Chubu Region
Akihiro Noguchi
Nagoya University
1. The 111th Regional Meeting (May 13, 2006) at Fukui Prefectural University(1) “Development of Cash Flow Statements in the People’s Republic of China,” Yu
Tian, Chubu University PhD student(2) “Accounting for Impairment: Business Decision before Accounting
Policy,” Motonobu Tokumae, Fukui Prefectural University(3) “Analysis on the Privatization of the Japan Post System,” Kentaro Nomura,
Aichi Institute of Technology
2. The 112th Regional Meeting (July 15, 2006) at Aichi University(1) “Manorial Accounting of the Middle Ages in Japan,” Takaharu Tanaka, Akeno
High School(2) “Intellectual Capital Management and Managerial Accounting,” Tsuneo
Mochizuki, Aichi University(3) “Company Law and Accounting for Shareholders' Equity,” Akihiro Noguchi,
Nagoya University
3. The 113th Regional Meeting (December 9, 2006) at Nanzan University
Theme: New Company Law and Business Accounting － Theory and Practice －Moderator: Toshihiko Shiraki (Nanzan University)(1) “A Comparison of ‘Comprehensive Income’ and ‘Net Income’ in Accounting
from a Historical Perspective,” Kazumoto Ido, Nagoya University of Foreign
Studies(2) “A Critical Analysis of the New Company Law from the Viewpoint of GAAP,”
Koichi Takahashi, Nanzan University(3) “Internal Control and Auditing by the New Company Law,” Mikio Maekawa,
Aichi Shukutoku University(4) “New Company Law and Accounting for Business Combinations andReorganizations,” Masaya Okada, CPA

30

Kansai Region
Atsushi Shiiba
Osaka University
The 56th Kansai Regional Meeting was held at Osaka University on December 16,
2006. The Meeting had open sessions and a plenary session. In the open sessions, thepresentations were as follows:(1) “Experimental Research in Accounting: A Ten-year Perspective on Judgment and
Decision Making Research in Financial Accounting,” Masayuki Ueeda, Otemon
Gakuin University(2) “The Selection between Discounted Residual Income Model and Discounted
Economic Profit Model: An Empirical Analysis,” Kenji Yasukata, University ofMarketing and Distribution Sciences(3) “International Convergence of Stock Option Accounting: Recognition of
Expense in Japanese and International Accounting Standards,” Kanako Hikichi,
Kwansei Gakuin University(4) “On the Applicability of the ‘Theory of Exchange’ for Fair Value Accounting,”
Takashi Fujita, Ritsumeikan University
The main theme of the plenary session was “Corporate Accounting Reform and the
Evolution of Accounting Theory.” Discussions were moderated by Teruyuki Kawasaki,
Konan University. The presentations and panelists were as follows:(1) “Corporate Governance and the Evolution of Accounting Theory,” Norio Sawabe,
Kyoto University(2) “The Change of Interaction between Commercial Code (Company Law) and
Accounting Standards,” Hideki Kubota, Konan University(3) “Discretion and Responsibility in Accounting Reform,” Ichiro Hoshino,
Hiroshima University

Kyushu Region
Chikako Ozu
Kyushu University
The JAA Kyushu Regional Conference regularly holds two meetings. The
followings are the plenary sessions conducted at the 78th and the 79th meeting. The
detail of the presentation and speakers are:31

1. The 78th meeting (August 5, 2006) at Seinan Gakuin University(1) “A Study on Present Value Accounting: The Changing Process from Present
Value Accounting to Fair Value Accounting,” Noriyuki Tsunogaya, Kyushu
University(2) “The Thinking Pattern of Bookkeeping: Its Robustness and Bookkeeping
Syndorome,” Eiichiro Kudo, Kumamoto Gakuen University(3) “An Examination to Bonus to Directors in Cooperate Tax,” Tetsuya Narumiya,
Kinki University(4) “Development of Budget Allocation Management: A Study on GM at the
Beginning of Twenty Century,” Shinichi Kourogi, Kurume University
2. The 79th meeting (March 17, 2007) at Miyazaki Sangyo Keiei University(1) “Some Comments on the Corporate Income Tax in China,” Tan Guilian,
Fukuoka University(2) “An Examination into the Comprehensive Statement and Realization Concept,”
Kouki Kishikawa, Saga High School of Commerce(3) “New Movement on the Chinese Accounting Standards: With Particular
Reference to the Conceptual Framework,” Toshifumi Yamashita, Saga
University(4) “Venture Capital: Its Judgment and Investment,” Invited Presentation by
Hidehiro Isogai, President, CEO, Miyazaki Taiyo Capital Co., Ltd.

32