2011-48
Isomorphic Change of Accounting Standards
against the Background of Globalization
Tadanori Yosano

Isomorphic Change of Accounting Standards against the Background of
Globalization

Tadanori Yosano, Graduate School of Business Administration, Kobe University

Abstract

This paper strives to explore and address one of the possible solutions for globalizing
accounting standards that meet Japanese social and economic values. This goes without
saying that accounting systems are subject to forces considered isomorphic with theglobal system according to authorities such as the IASB and the FASB.

The

accounting system is also inclined to be isomorphic with the global system due to theabstract and vague objectives of value relevance and reliability (or faithfulrepresentation) with financial reporting.

We understand that a great amount ofenforcement exists for the isomorphism of institutionalization in the social phenomenon,
therefore I focus on the process of creating a sense of legitimacy for the IFRSs. I focus
specifically on the process of structuring and institutionalizing to expand the field of
IFRSs and thereby creating legitimacy. I also focus on how the FASB has been working
on establishing restraints for IFRS expansion after the issuance of the “Memorandum
and Understanding ‘The Norwalk Agreement’.” Furthermore, this paper discusses theprospects and challenges for the globalization of accounting standards in Japan. One
possible solution would be to disclose reconciliation accounts that show the maindifference between the IFRSs and the Japanese GAAP.

The summative disclosure ofsignificant adjustments against the net income and shareholder’s equity will be required
if the IFRSs has been fully applied in lieu of the Japanese GAAP.

11. Introduction

The Accounting Standards Board of Japan (ASBJ) has been diligently working onconverging with the International Financial Reporting Standards (IFRSs) to improve
accounting standards to match the globalization of corporate activities, financing, andsecurity investments.

This has been an urgent issue specifically after the ASBJ and theInternational Accounting Standards Board (IASB) jointly announced the Tokyo
Agreement that works for the acceleration of converging the Japanese GAAP with the
IFRSs, a process that began in March 2005. On June 30, 2009, for example, with theintention of adopting the IFRSs, the "Opinion on the Application of International
Financial Reporting Standards (IFRS) in Japan (Interim Report)" was published by theBusiness Accounting Council (BAC) of the Financial Services Agency (FSA). In orderto promote the globalization of accounting standards, accounting standards, needless tosay, should facilitate and encourage the comparability of financial information after
clarifying the differences in accounting standards between countries. However, whether
the convergence of accounting standards is the sole solution for cultivating a global
accounting setting has yet to be discussed thoroughly.
This paper strives to explore and address one of the possible solutions for
globalizing accounting standards that also meet Japanese social and economic values.
This goes without saying that accounting systems are subject to forces consideredisomorphic with the global system according to authorities such as the IASB and the
U.S. Financial Accounting Standards Board (FASB). The accounting system is also
inclined to be isomorphic with the global system due to the abstract and vague
objectives of value relevance and reliability (or faithful representation) with financial
reporting.

We understand that a great amount of enforcement exists for theisomorphism of institutionalization in the social phenomenon, therefore I focus on theprocess of creating a sense of legitimacy for the IFRSs. I focus specifically on theprocess of structuring and institutionalizing to expand the field of IFRSs and thereby
creating legitimacy. I also focus on how the FASB has been working on establishing
restraints for IFRS expansion after the issuance of the “Memorandum andUnderstanding ‘The Norwalk Agreement’.”

Furthermore, this paper discusses theprospects and challenges for the globalization of accounting standards in Japan.
22. Institutional and structural processes for expanding the International

Accounting Standards field

Converging the Japanese GAAP with the International Accounting Standards (IAS)
has been discussed as one of the most important issues considering the backgroundwhere the International Organization of Securities Commissions (IOSCO) has approved
the IAS 1 to 39, issued between 1973 and 2000, as core standards, and the International
Accounting Standards Committee (IASC) has reorganized their regulatory body into the
IASB in order to develop global accounting standards. One approach to addressingthese issues is to understand accounting standards as a social “institution,” and create a
discussion for the globalization of accounting standards from the viewpoint of a new
institutionalized theory.
In new institutional sociology, “institution” is defined as follows :Institution represents a social order or pattern that has attained acertain state or property; institutionalization denotes the process ofsuch attainment. By order or pattern, I refer, as is conventional, to
standardized interaction sequences. An institution is then a social
pattern that reveals a particular reproduction process. When departuresfrom the pattern are counteracted in a regulated fashion, by repetitively
activated, socially constructed, controls --- that is, by some set ofrewards and sanctions --- we refer to a pattern as institutionalized(Jepperson, 1991, p. 145).
The key is that “institutions are not reproduced by action” in a strict sense ofcollective intervention of a social setting. On the other hand, routine reproductive
procedures support and sustain the pattern, and furthers its reproduction unlesscollective action blocks, or environmental shock disrupts the reproduction process ( ibid.
p. 145).
In order to understand the process of how the IFRSs have acquired an
institutionalized, stable, and sustainable position and how it has expanded, it isimportant to understand the background for establishing their legitimacy. According to
Sachman (1995), legitimacy is defined as“Legitimacy is a generalized perception or assumption that the actions3

of an entity are desirable, proper, or appropriate within some sociallyconstructed system of norm, values, beliefs and definitions (p. 574),”
and is classified into three categories: pragmatic legitimacy, moral legitimacy, andcognitive legitimacy (Table 1).
Pragmatic legitimacy is acquired temporarily or intermittently when benefits areexchanged (exchange legitimacy). Pragmatic interests are acquired not only throughdirect exchange, but also through political, economic, and social interactions. Withinthese interactions, a particular set of constituents support organizational policies basedon the policy’s expected value for them. If the organization incorporates its constituents
into its policy-making structures or adopts constituent performance standards as its own,
then the influence over constituents becomes continuous (influence legitimacy). The
nature of these exchanges are dependent on if the constituents share exchangeable“merits,” or the episodic characteristics of legitimacy, and whether the organizational
policy is of good character, which is the continuous characteristic of legitimacy(dispositional legitimacy). Moral legitimacy reflects a positive normative evaluation of
the organization and its activities. This legitimacy is temporarily acquired as aconsequence when practical activities are regarded as socially valued (consequential
legitimacy), andbecomes continuous when the organization embraces sociallyacceptable procedures and/or techniques (procedural legitimacy). Legitimacy can beacquired using the charisma of an individual organizational leader, however, as a
general rule, this kind of personal legitimacy tends to be relatively transitory andidiosyncratic (individual legitimacy). Even without a charismatic leader, such as whenentire systems of activity recur consistently over time, this type of moral legitimacy
might be classified more as structural (structural legitimacy). Cognitive legitimacy is
acquired when the chaotic social environment is arranged into coherent, understandable
accounts. In order to provide cognitive legitimacy, an account must mesh the larger
belief systems with the audience’s daily life experienced reality (DiMaggio and Powell,1991) (comprehensibility legitimacy). Furthermore, when constituent cognition isconsistent, then legitimacy becomes continuous (taken-for-grantedness legitimacy).
When the activity has become predictable, it naturally becomes more understandable.
This nature is the plausibility, and if the activity becomes inevitable then it have ataken-for-grantedness nature. This nature is permanence (Sachman, 1995, pp. 577-584).
4

[Table 1 insert here]

IAS, first, has acquired a sense of pragmatic legitimacy through the following: (1)promoting the international comparability of financial statements, (2) reducing
conformity costs for multinational companies with different criteria across countries,and (3) completing the core standards with the issuance of IAS 39 “Financial
Instruments - Recognition and Measurement” as the interim standard on January 1.
IAS 39 was developed to be consistent with Exposure Draft 32, the “Comparability of
Financial Statements,” which advocates shifting from having several alternative
accounting policies towards a single or limited accounting policies for specificeconomic transactions. Accomplishing the main parts of the core standards was inresponse to the IOSCO request for achieving the realization goal for the mutual
approval for multinationally listed companies. “The IASC accounting standards 2000,”
which are comprised of IAS 1 to 39, received the IOSCO’s approval.
Second, the IAS has earned moral legitimacy through the following process. In orderto accommodate the formal procedure for developing IFRSs in the IASC organization,
the IAS, in April 2011, incorporated the due procedures necessary for the development
and amendment of accounting standards.

These procedures included a request for

public opinions by issuing an exposure draft beforehand. They also reorganized andstrengthened their organizational structure, whose members are mediators delegated by
the official accounting standard setters from each main country.

Sir David Tweedie,

who just stepped down from his 10 year cardinal chairman position at the AccountingStandards Board, UK, was appointed the first Chairman of the IASC Foundation. The
chairman is a central role in the governing structure of the new IASC organization.
Meanwhile, the IFRSs has been expanding their influence across the EU. The European
Commission, during the Financial Services Action Plan, confirmed that the IAS was
solely the most appropriate standards for financial reporting, and serves as a catalyst
for the development of integrated, sole financial markets in the EU in May 1999. The
European Commission needs comparable, transparent, and reliable financial
information to build the basis for efficiently integrated financial markets in the EU. The
Financial Services Action Plan was accepted at an accelerated rate through promotional5

agreement talks at the European Summit held in Lisbon in March 2000. At thisconference, the European Summit deemed the development of a unified European
financial market as a top priority. As a result in May 2002, the European Commission
approved listed companies in the EU to prepare consolidated financial statements inaccordance with the IFRS by 2005.
The expansion of IFRSs across Europe converted the FASB’s original policy. Theiraccounting standards are used in the U.S., whose GDP share is around 30% in the world,and American accounting standards have been regarded as the “highest quality” superior
above other country’s accounting standards especially from the investor protection
perspective. However, in October 2002, the FASB published a formal Memorandum ofUnderstanding that works with the IASB (“Norwalk Agreement”) towards theconvergence of the IFRS and U.S. GAAP. This action shows that the FASB has shifted
their focus towards the development of accounting standards that will pass in global
markets including the U.S. market. The FASB and IASB mutually confirmed that theywould aim for a high-quality, globally-compatible accounting standards.
The remarkable contribution from the FASB is that they were actively involved insetting the standards within the IASB. A representative example is the establishment ofa joint project to develop a new accounting standard for business combinations with the
IASB. This joint project was successful in issuing exposure drafts from both the FASB
and IASB with very similar contents. One was the “Exposure Draft of the Proposed
Amendments for IFRS3 Business Combinations” and the other was the “Exposure Draft
for the Proposed Statement of Financial Accounting Standards Business Combinations a replacement of FASB Statements No. 141.” In the previous section, I showed how the
IFRS has gained both procedural and structural legitimacy during the expansion process
to become more globalized. FASB has constrained both the expansion of the IASB andstrengthened their own legitimacy by actually being involved in the IASB’s official due
process and participating in the IASB’s formal decision making process.
The FASB’s action towards the IASB is helpful for the discussion about theaccounting standards set in response to the globalization of corporate activities,
financing, and security investments. Even if we promoted the international
comparability of financial statements, taking into account the conformity costs ofdomestic companies, the FASB’s action suggests that the convergence of accounting
6

standards with the IFRSs is not the sole solution with a global economic background.

3. Constituents need comprehensibility

As a matter of a fact, the U.S., in 2011, shifted their stance towards the IFRSs fromthe adoption approach to the condorsement1 option, for the following three reasons(SEC, 2011).
(1)

Thus far, there are still large differences between the IFRSs and U.S. GAAP,and the IFRSs has yet to accomplish establishing accounting standards
applicable around the world. Therefore, they need frequent revisions, even if
the U.S. accepts the IFRSs now. The best option for the U.S. is to incorporatea certain portion of the IFRSs that are actually necessary.

(2)

The big bang approach to adopting the IFRSs at once costs a lot for U.S.
corporations and the U.S. government. Therefore, a gentle adoption approach
would curb the conformity cost and burden for the U.S.

(3)

The U.S. security markets are able to protect the domestic rights and interests,
if the U.S. maintains the domestic GAAP.

Meanwhile, the Japanese FSA announced the gradual progression schedule for
adopting the IFRSs: “Mandatory application should not take place from the businessyear ending March 2015, at the very least, and a sufficient time period of five to sevenyears should be required for preparation if and after mandatory application is decided(“Consideration on the Application of IFRS” on 21 June 2011).” The Japanese FSA alsoannounced the removing the termination date of the treatment to allow Japanese
corporations2 to use the U.S. GAAP. In this scenario, Japanese corporate managers
voiced a guarded statement: “Focusing on long-term perspectives, the examination isnecessary to determine whether the adoption of the IFRSs will contribute well to thereconstruction and revitalization of the Japanese economy and industrial sectors

1

Condorsement is a coined phrase which combines endorsement with convergence.
Japan has allowed the use of U.S. GAAP for Japanese firms for disclosure purposes in
the interim, namely up to the business year ending on or before 31 March 2016. This
removal will allow the firms to continue their use of U.S. GAAP. Currently, 38 firms,
whose representatives are SONY and Panasonic, adopt U.S. GAAP in Japan.

27

(“Requests on how to deal with IFRS in Japan3 (May 25, 2011)” according to 21 firms
from the industrial sector).”The official grounds for the IFRSs are different between the U.S. and Japan.
However, these shifts reflect the deficiency of the comprehensibility of the IFRSs forthe constituents of the U.S. and Japanese accounting field. The IFRSs have obtained
pragmatic and moral legitimacy, however, it lacks the construction of cognitive
legitimacy. The concept of the IFRSs do not satisfy constituents understating of their
daily experienced business reality. Especially in Japan, the earning concept for theconstituents might be different from the IFRSs4.

3

The requests also involve the following outline:(1) A prompt discussion is needed on the general design of the accounting system

including the appropriateness of IFRS application to the consolidated financial
statements of listed companies based on proper analysis and sharing of information
on international developments.
(2) If it takes time to reach a conclusion on the design of the entire system, it isnecessary to provide a sufficient time period for preparation (e.g., five years) andextend transitional measures (continued acceptance of disclosure using US GAAP),
so that the industry would not incur unnecessary costs for preparation.
4
On June 21st, 2011, Shozamuro Jimi, the minister for the FSA announced thefollowing: “I would hope that the discussion pays due attention to the fact that the“accounting standards” are not merely technical issues, but much broader issues highly
relevant to the status of Japanese firms closely related to the country’s history, businessculture, and national heritage, as well as related legal systems including Companies Act
and the tax system, and the firms’ global competitiveness, and thus takes account of theviews of a wide range of stakeholders and at the same time carefully pays close
attention to domestic developments and the situation in other countries, inter alia, in the
United States, so that the discussion will be comprehensive and mature (“Considerationon the Application of IFRS” on 21 June 2011).”On July 20th, 2011, the chairman of the Japan Business Federation also announced
the following: “It is a good move for us to aim at standardizing the international
standards. However, we need to follow perspectives, such as the Japanese industry
particularly manufacturing, seen as a place a great importance for going-concert
principles rather than as a transitory value and corporate investment decisions. With theeconomic background with the U.S. stance towards the adoption of the IFRSs, thedirection that we are going will be deliberated thoroughly to decide whether adopting
the IFRSs is desirable.” Japan Business Federation (Keidanren) 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 1,603 is comprised of 1,281 companies, 127 industrial
associations, and 47 regional economic organizations (as of June 15, 2011).
8

4. Isomorphic change in accounting standards in a globalized setting

Dimaggio and Powell (1983) analyze how institutional isomorphic changes occur
according to the three following mechanisms. The first isomorphic change results fromboth formal and informal pressure, otherwise known as coercive isomorphism (p. 150).
However, not all isomorphism is derived from coercive authority. The second
isomorphic change results from uncertainty. Uncertainty encourages imitation referred
to as a mimetic process (p. 151). A third source of isomorphic change is normative andstems primarily from professionalization (normative pressures) (p. 152, Table 2).

[Table 2 insert here]

Coercive isomorphism results from both formal and informal pressures exerted onorganizations by other organizations that they are dependent on and react to culturalpressures from the society that surrounds them (ibid. p. 150). The Japanese GAAP has
been pressured to isomortize towards the IFRSs through the mandatory IFRSs adoption
in the EU region, and authorized agreement between the FASB and IASB (“Norwalk
Agreement”) which includes over 50% economic powers around the world. The historyof Japanese GAAP isomorphic changes is shown in Table 3. However, not all
institutional isomorphic changes are derived from coercive authority. Uncertainty
strongly encourages mimicry. When organizational technology is not thoroughly
understood, when organizational objectives are ambiguous, and when the social and/or
economic environment creates symbolic uncertainty, organizations model themselves
after other organizations (ibid. p. 151). These trends occur especially in situations where
harmonization is achieved by appeasing conflicting goals. Participants in this situation
find that, rather than determine their policies based on

systematic analysis ofobjectives, it is easier to mimic other organizations’ mannerisms. The analysis can bepainful, and sometimes even disastrous. Moreover, imitation can also be practiced
almost without any time and labor costs, etc. Financial reporting objectives, such as thedecision-usefulness for investors, reliability (or the faithful representation), true and fairview, or appropriate periodical income calculation, are naturally ambiguous and abstract
concepts. The views concerning financial reporting objectives also vary according to the9stakeholders. In this situation, the accounting system’s isomorphic change towards the
IFRSs might be strongly recommended, especially when the IFRSs have acquired
procedural and structural legitimacy. A third source of normative isomorphism isprimarily due to professionalization (ibid. p. 152). The greater the degree ofoccupational professionalization in the field, the more conducive to isomorphic
institutional changes. Occupational professionalization, where the organizational fate
and future is closely related with their employee’s fate and future, is under pressure suchas coercive and/or mimetic isomorphic changes similar to the organizations.

[Table 3 insert here]

Taking the force of isomorphic change into consideration, would the sole solution for
the Japanese GAAP be to converge with the IFRSs? As the globalization of corporate
activities and financing expands, the comparability of financial statements becomes
more essential for multinationally listed companies. Against the background of security
investment globalization that allows foreign investors to hold over 25% of shares inJapanese companies (Figure 2), issuing a financial statement that only follows theJapanese GAAP is not sufficient for creating legitimacy. In this situation, a financial
statement that only adopts the Japanese GAAP does not satisfy the foreign investor’s
pragmatic interests, and is, by nature, not understandable to those, who are financial
statement users. In other words, the globalization process for the Japanese GAAP also
needs acquisition and/or creation of legitimacy.

5. The potential and challenge for the globalization of Japanese GAAP

The ASBJ absolutely needs to work on an appropriate due process for setting
standards and involve themselves with the official decision making organizations as arepresentative of Japanese views in the IFRSs.

This is similar to what the FASB isdoing, and under the circumstance that Japanese accounting constituents do not need an
isomorphic imitation of the Japanese GAAP from the IFRSs. Japan will be able toaccomplish this because their economic influential status, as measured with over a 10%
GDP, is the third strongest in the world despite China overtaking second place in 2009.
10

Japan also donated 1.74 million pounds to the IFRS foundation in 2009, which isequivalent to about 25% of total shares, and the second greatest donation after 1.85
million pounds from the U.S. (SEC, 2009, p. 36).
However, if we select this convergence approach involving official participation in
the IFRSs process, then a company with multi-national activities and/or investors will
have a financial statement different from the one that reflects Japanese oriented
transaction customs and practices, and socio-economic sense of values. In this situation,
the new challenge is whether Japanese accounting constituents, such as corporate
managers and investors, can understand the newly converged financial statement.
Whether this approach will be able to obtain cognitive legitimacy depends on the socioeconomic sense of value judgment from Japanese corporate managers and investors. In
other words, Albert (1991) classified capitalism into two categories. One is the NeoAmerican capitalism; the other is Lhine capitalism. It is characteristic of Anglo-Saxon
companies, typically from the U.S. and U.K., to place a great amount of importance on
individual success and pursuit of short-term wealth in addition to market competition.
On the other hand, it is characteristic of Germany and Japan to place importance oncollective success, consensus, and prospects for a long-term wealth (Table 4). Based on
Anglo-Saxon economic viewpoints, “timely performance evaluation” is strongly desiredbyaccounting constituents who place a great amount of importance on the short-term

return. “Timely performance evaluation” is needed not only for the financial
components, which are proportionally increasing, but also for operational assets andliabilities, which are invested into actual business operations.

From this viewpoint, theU.S. and U.K. aspire for earning numbers that indicate a concrete wealth according to
the Asset-Liability view. The formula to calculate the earnings number is the increase in
the net economic wealth for a certain period based on asset and liability measurements.
On the other hand, Japan places a great amount of importance on the manufacturingsectors which are based on technologies united through human resources. In this case,the direct measurement of the company’s efficiency, the company’s ability to generate
revenue, is emphasized more heavily.

The input such as the aggregation costs arematched with the output (revenue) by collecting a huge amount of PPT investments andR&D investments in addition to raw materials and labor costs (“aggregation of thecosts”).

According to this viewpoint, Japan aims for earning numbers that indicate
11abstract numerical figures based on the Revenue-Expense view. The formula tocalculate the earnings number in this perspective is the flow amount represented byoutput minus the input using the matching principle for a certain period. However, even
if Japan aims at a long-term, smoothed earnings number and attaches a great amount ofimportance to the earnings figure that expresses the surplus after recovering theinvestment capital (costs), then marketable financial components should be fair valued,
future retirement benefit obligations should be charged as retirement benefit costs, andimpairment charges are needed if the operational assets no longer contribute to future
revenue. The vital point is to establish a sense of proximity and whether the earnings
concept is close to the constituent’s daily business experienced reality in the accounting
field.

[Table 4 insert here]

What should we do, if Japanese corporate managers and investors have a socioeconomic sense of value that isn’t able to accept the earning numbers which express
concrete real wealth according to the Asset-Liability view?

One possible solution

would be to disclose reconciliation accounts that show the main difference between the
IFRSs and the Japanese GAAP. The summative disclosure of significant adjustments
against the net income and shareholder’s equity will be required if the IFRSs has been
fully applied in lieu of the Japanese GAAP.

This would guarantee the comparability ofdifferent accounting policies between the two standards. This reconciliation method is
generally widely-used when Japanese parent companies using the U.S. GAAP
consolidate subsidiaries who use the Japanese GAAP. This reconciliation methodenhances the global comparability of financial statements across borderlines. It allows
multinational company managers to obtain pragmatic benefits when they raise funds ininternational markets. Foreign investors also acquire a pragmatic interest when theyjudge the company’s financial prospects. A disclosure method for reconciliation, ofcourse, requires a good device in order to obtain the comprehensibility. A procedure fordisclosure of supplement financial statements for reconciliation absolutely needs
approval from international decision-making bodies involved with their due process.
The intention of Japanese financial statements aim at long-term, smooth earning
12

numbers contrasts that of the IFRSs which aspire for earnings that express concrete real
wealth. Therefore, it is important for the approach towards adopting supplement
financial statements to be accepted as a socially valuable to the international decisionmaking bodies shown through Japan’s positive involvement in official processes.
I hope this paper will be shared with constituents in the Japanese accounting field,
such as accounting setters and accounts, as one of the viewpoints towards theglobalization of the Japanese GAAP.
[2011.12.2 1065]

13

Reference

Albert, M. (1991) Capitalisme Contre Capitalisme, Éditions du Seuil.
BAC (2009), Opinion on handling International Accounting Standards in Japan(Interim Report), Planning and Coordination Committee, June 30, 2009, BAC.
DiMaggio, P. J. and W. W. Powell (1983) “The Iron Cage Revisited: Institutional
Isomorphism and Collective Rationality in Organizational Fields,” American
Sociological Review, Vol. 48, No. 2, pp. 147-160.
Doupnik, T. and H. Perera (2009) International Accounting, International Edition 2009,
2nd edition, McGraw-Hill Companies.
Ernst and Young (2011) International GAAP 2011, Volume 1, A John Wiley and Sons,
Ltd, Publication.
FASB (2005), Exposure Draft: Proposed Statement of Financial Accounting Standards
Business Combinations－a replacement of FASB Statements No. 141, FASB.
Financial Accounting Standards Board and International Accounting Standards Board(2002) Memorandum of Understanding “No Walk Agreement,” September 18, 2002,
FASB and IASB.
Financial Services Agency in Japan (2009) Consideration on the Application of IFRS,
June 21, 2011, FSA.
International Accounting Standards Board (1998) Financial Instruments - Recognition
and Measurement, IASB.
International Accounting Standards Board (2005) Exposure Draft of Proposed
Amendments to IFRS3 Business Combination, IASB.
International Accounting Standards Committee (1989) Exposure Draft 32, theComparability of Financial Statements, IASC.
International Accounting Standards Committee Foundation (2009) Annual Report 2009,
IASC Foundation.
Japan Business Federation (Keidanren) (2011) Request for the early deliberation on the
adoption of the IFRSs, June 29, 2011, JBF, in Japanese.
Jepperson, R. L.（1991）“Institutions, Institutional Effects, and Institutionalism,”
Powell, W. W. and P. J. DiMaggio (Edited), The New Institutionalism in

14

Organization, The University of Chicago Press, pp. 143-163.
Koga, C., and J. Yao (2010), Japan GAAP Guide, CCH Japan Limited.
Securities and Exchange Commission (2011) Work Plan for Consideration ofIncorporating International Financial Reporting Standards into the Financial
Reporting System for U.S. Issuers-Exploring a Possible Method of Incorporation,
Staff Paper, May 26, 2011, SEC.
Suchman, M. C. (1995) “Managing Legitimacy: Strategic and Institutional Approaches,”
Academy of Management Review, Vol. 20, No. 3, pp. 571-610.
21 firms from the industrial sector (2011) Requests on how to deal with IFRS in Japan,
May 25, 2011, in Japanese.

15

Table 1 A Typology of Legitimacy
Actions

Essences

Disposition
Episodic

Excange

Interest

Continual

Influence

Character

EpisodicConsequential

Personal

Continual

Procedural

Structural

Pragmatic
Legitimacy

Moral
Leitimacy

Comprehensibility
Episodic

Predectability

Plausibility
Cognitive
Legitimacy

Taken-for-grantedness
Continual

Inevirability

Permanence

Source） Suchman, 1995, p. 584.

16

Table 2 Mechanisms for how institutional isomorphic changes occur by DiMaggio
and Powell (1983)
Coercive isomorphism

Mimetic isomorphism

Normative isomorphism

Coercive isomorphism results from Whenorganizational A source of normative
both formal and informal pressures technology is not thoroughly isomorphism is primarily due towhen professionalization (p. 152). The
exerted on organizations by other understood,organizations that they
are organizational objectives are greater the degree of occupational
dependent on and react to cultural ambiguous, and when the professionalization in the field,pressures from the society that social
and/oreconomic the more conducive tosurrounds them (p. 150).
environment creates symbolic isomorphic institutional changes.
uncertainty,
organizations
model themselves after otherorganizations (p. 151).

17

Table 3

The roadmap of the convergence between Japanese GAAP and IFRSs

Disclosure Standards for Segment Information“It is still necessary to prudently consider fromthe viewpoints of international harmonization (I2) ”

ASBJ Statement No.13: Accounting Standards
for Lease Transactions “It contribute theconvergence between IAS and Japanese GAAP
because this standard is close to equivalent withthe current IAS 17 ‘Lease (par. 34).”

IASC (the International Accounting Standards
Committee) issued Exposure Draft 32, the“Comparability of Financial Statements,” which
advocates shifting from having several alternative
accounting policies towards a single or limited
accounting
policiesfor
specific
economic

1988
1989

IASC completed the core standards with theissuance of IAS 39 “Financial Instruments Recognition and Measurement” as the interim
t d d

1993

International
Organizationof
Securities
Commissions (IOSCO) has approved the IAS 1 to39, issued between 1974 and 2000, as core
standards

Accounting Standards for Retirement Benefits“So that they are compatible with international
standards (II).”

Statement of Opinions on Revising AccountingStandards for Foreign Currency Transactions“With a view to promote the international
harmonization of accounting standards (II-1)”

Accounting Standards for Impairment of Fixed
Assets“International harmonization of accounting
standards has become an issue to be dealt with

IASC has reorganized their regulatory body into the
IASB in order to strengthen their organizational
structure and develop global accounting standards.

1998
FASB published a formal Memorandum ofUnderstanding that works with the IASB (Norwalk
Agreement) towards the convergence of the IFRS
and U.S. GAAP.

1999
2000

Listed companies in the EU are mandatory required
to prepare consolidated financial statements inaccordance with the IFRSs.

2001

The Committee of European Securities Regulators(CESR) announced the equivalence assessment
which approves the Japanese GAAP, in general, isequivalent to IFRSs, however, but also needs
supplementary measures for Japanese GAAP inseveral points where the differences exit．

2002
2003

Accounting Standards for Business
Combinations“It is widely considered that Japanese
accounting standards should be standardized
with those at the international level (I).”

Memorandum of Understanding towards theconvergence between IFRSs and the U. S. GAAP
was agreed

2005
ASBJ Statement No.21：AccountingStandards for Business Combinations“Taking the thinking way of the International
Accounting Standards (par. 77).”

The Accounting Standards Board of Japan (ASBJ)
and the International Accounting Standards Board(IASB) jointly announced the Tokyo Agreement thatworks for the acceleration of converging theJapanese GAAP with the IFRSs.

2006
2007

Securities of Exchange Commission (SEC)
announce the Roadmap which explores the
adoption of IFRSs for the U. S. listed companies.

2008
Japanese Financial Services Agency (FSA)
published the "Opinion on handling International
Accounting Standards in Japan (Interim Report)".

2009
ASBJ Statement No.25: Accounting Standard for
the Presentation of Comprehensive Income“In response to the trend of the International
Accounting Standards (par. 20).”2010

The voluntary application of the IFRSs are madepossible for Japanese companies.

18

Table 4"Neo-American capitalism" versus "Lhine-type capitalism"

Neo-American capitalism

Characteristics

Lhine-type capitalism

The characteristics of Anglo-Saxon
The characteristics of Germany and Japan
companies, typically in the U.S. and U.K.,
are that they place a great amount ofare that they place a great importance on
importance on collective success,individual success and pursuit of shortconsensus and prospects for a long-term
term wealth, as well as the market
wealth(Albert, 1991)．
competition. (Albert, 1991)．

The increase in the net economic wealth The input, such as the aggregation costs,
Calculation formulafor a certain period based on the asset and is matched with the output (revenue) byfor earning numbers
liability measurement.
collecting costs.
Characteristics for A concrete realistic wealth based on theearnings figure
Asset-Liability view.

An abstract numerical figure based on the
Revenue-Expense view.

19Figure 1

The Shift of Stock investor's distribution

The Shift of Stock Investor's Distribution（Sum of the five stock exchanges in Japan, %）
50.0

45.0

40.0

35.0

30.0

Government/Municipal
Banks

25.0

Security companies
Business corporations

20.0

Individuals
Foreign investors

15.0

10.0

5.0

0.0

Source）Tokyo Stock Exchange, Investigation for Stock Investor's Distribution, Long-term statistics "The Shift of Stock Investor's Distribution"(the percentage is measured by market value.)20