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MANAGEMENT ATTITUDES TOWARD ADOPTINGINTERNATIONAL ACCOUNTING STANDARDS:HOW JAPANESE MANAGEMENT ATTITUDESCHANGED IN THE PAST DECADESDan Hu, Nagoya University
ABSTRACTThis research investigate Japanese managers’ attitude toward the adoption of the IFRS
in Japanese companies and the changes in attitude over the past ten years after the Accounting
Big Bang. The results are as follows. (1) Japanese companies have still been great importance tothe domestic stock market after 1997. (2) The difference between Japanese accounting standards
and the IFRS has been clearly perceived by management. (3) There is growing considerationthat the application of the IFRS for separate and for consolidated financial statements of parent
companies should be dealt with separately. (4) Japanese companies have shown a negative
attitude to adopting the IFRS. (5) Japanese managers expected that the costs would exceed thebenefits for adoption of the IFRS.
INTRODUCTION
The year 2005 represented the beginning of a new era for financial reporting when EU
countries required the use of International Accounting Standards (IAS)/International Financial
Reporting Standards (IFRS). In addition, during March 2005 in Japan, a joint project on theconvergence of Japanese generally accepted accounting principles (GAAP) and IFRS wasestablished to analyze and discuss their equivalencies (Koga & Rimmel, 2006). The same trend
can also be observed in other countries with capital markets dealing with cross-bordertransactions (Godfrey & Chalmers, 2007). This proceeding convergence is assumed to have had
a great impact on preparers (managers) and investors, as well as other market participants and theaccounting profession. Amid the trend in accounting standards globalization, Japan faces
important issues such as whether to adopt IFRS (unification option) or maintain Japanesestandards (diversification option). The present study investigated Japanese managers’ opinions
on issues concerning IFRS adoption and attempted to provide evidence for setting future
standards.
THE CHANGING CORPORATE GOVERNANCE STRUCTURE
During the past ten years, Japan has seen great changes in corporate governancestructure, regarded as the promoter of accounting standards globalization. After the Financial Big

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Bang, the change in the business environment caused Japanese companies to alter their corporate
governance structures toward a global standard, as evidenced in the following three aspects.
First, foreign ownership increased dramatically, whereas financial institutional ownershipshowed a decreasing trend. As shown in Figure 1, foreign ownership increased impressively
since the end of the 1980s, especially during the most recent five years (2002, 16.5%; 2006,
25.4%) after the Big Bang. In contrast, financial institutional ownership, which increased before
the end of the 1980s, began to decrease after the 1990s and declined by 8% from 25.7% in 2002
to 17.7% in 2006.
Figure 1 Change in Ownership

Note: (1) 1: foreign investor; 2: individual and other investor; 3: corporation; 4: financial institution;
5: investment trust; 6: pension fund(2) The number of stocks is on a stock-trade unit base from 2001.
(3) Investment trusts and pension trusts were not included in financial institutions(however, before 1978, pension trusts were included).
(4) In 2004 and 2005, Livedoor Co., Ltd was excluded.
(Source) Cabinet Office, Government of Japan (2008), p.212.

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Figure 2 Change in Cross-holdings

Note: (1) The rate of cross-holding is the rate of cross-holding of listed companies’ (including banks)
stock to the stock of the total market.
(2) The number of stock on a stock-trade unit base (stock value unit base before 2000).
(3) Livedoor Co., Ltd was excluded in 2004 and 2005.
(Source) Cabinet Office, Government of Japan (2008), p.214.

Figure 3 Change in M&A Activity(Source) Cabinet Office, Government of Japan (2008), p.214.

Second, the rate of cross-holdings fell dramatically. Figure 2 illustrates that the rate ofcross-holdings remained low after the bubble. As measured on a value base, the cross-holding
rate declined from 12.6% in 1999 to 8.7% in 2006, and as measured on a stock number base, therate declined significantly from 1999 (13.9%) to 2006 (5.9%). Moreover, recent years have seena decrease in non-financial companies’ holdings in bank stocks, while banks’ holdings of nonfinancial companies’ stock and cross-holdings of non-financial companies stock increased.

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However, it should be noted that the cross-holding rate increased slightly from 5.5% in 2005 to
5.9% in 2006, in contrast with the continuous decrease during the nine years since 1997.
Third, M&A activity increased largely since 1999 (see Figure 3), led by an increase in the
cross-holding of non-financial companies’ stock as well as the start of attributing the
responsibility of corporate governance to management.
A Ten-year Period of Moving toward Internationalization
I conducted three similar surveys, one in 1997, one in 2005 and one in 2008, on how
Japanese companies regard the internationalization of accounting standards. The first survey was
conducted right after the Japanese government made a decision on the basic policy following theJapanese Financial Big Bang, while attempting to eliminate the lack of transparency that has
been said to characterize the Tokyo market and improve on globalization by making acommitment to global standards instead of focusing on domestic logic. During the following ten
years, Japan implemented extensive reforms in its accounting system and commercial code, andmoved toward adopting international standards, a process well known as the “Accounting Big
Bang” (since 1999). Through these reforms, Japanese accounting has become quite similar to the
IFRS. Notwithstanding, some differences remain in specific accounting standards. During 2002
and 2003, the Japanese Financial Services Agency, the Ministry of Justice, and Nippon
Keidanren expressed a negative opinion toward the adoption of the IFRS, while on October 29,
2002, the International Accounting Standards Board and the U.S. Financial AccountingStandards Board jointly issued a memorandum of understanding formalizing their commitment
to the convergence of U.S. and international accounting standards. Nippon Keidanren (Japan
Business Federation) is a comprehensive economic organization initiated in May 2002 by theamalgamation of Keidanren (Japan Federation of Economic Organizations) and Nikkeiren (Japan
Federation of Employers' Associations). Its 1,662 members are comprised of 1,343 companies,
130 industrial associations, and 47 regional economic organizations (as of June 22, 2007). In themeantime, the EU adopted the IFRS as of 2005. With this background, in 2005, I conducted thesecond survey.
Surprisingly, Nippon Keidanren changed its opinion in favor of convergence with the
IFRS in 2006, three years after it expressed a negative opinion toward such an adoption.
However, a lack of real progress remained. In 2007, the publication of the SEC’s Concept
Release on Allowing U.S. Issuers to Prepare Financial Statements in accordance with
International Financial Reporting Standards (the Concept Release) and its proposal, Acceptancefrom Foreign Private Issuers of Financial Statements, prepared in accordance with International
Financial Reporting Standards without Reconciliation to U.S. GAAP, found that Japan was
excluded from the global trend. After the Big Bang, Japan seemed to lag behind its European and
U.S. counterparts in converging with the IFRS. What Japan should do next was a significant
issue. With this background, in 2008, I conducted the third survey.
On the one hand, the increasing importance of international capital markets requires
complete convergence with the IFRS. Particularly for multinational companies that operate
globally, converged accounting standards are considered to be helpful in improving international

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finance and management operations. On the other hand, when it comes to the process of adopting
the IFRS, many obstacles exist. For example, determinations must be made on how to adopt the
IFRS, and whether to focus on overall adoption or an optional adoption, adoption only forconsolidated financial statements or for both consolidated and non-consolidated financial
statements, and how to deal with specific accounting standards such as R&D, depreciation of
goodwill, fair value accounting, etc. Controversy exists among Japanese companies. The
management of Japanese companies seems to be cautious about such an adoption. As providersof financial information and preparers of financial statements according to accounting standards
in practice, their attitudes may influence the direction, process, and speed of accounting reform.
The decade after the Big Bang saw great changes in the Japanese economy and Japanesebusiness practices, as well as a global trend of convergence of accounting standards. The
following questions are interesting and important at a time when Japan is standing at a
crossroads in determining the right way to approach the target of accounting globalization.
(1)
(2)
(3)

How do managers of Japanese companies regard the adoption of the
IFRS?
Are there any significant differences in management’s attitudes over the
past ten years toward the adoption of the IFRS?
How did management change their attitude, and what causes suchchanges, if any?

Exploring these issues helps us understand the specific problems related to globalizationof accounting standards, and has implications for the future direction of the development ofJapanese accounting standards.
RESEARCH METHOD
Through a postal questionnaire, the present research investigated Japanese managers’
attitudes toward the adoption of the IFRS and the current status of the application of the IFRS in
Japanese companies. Accounting rules as a kind of social institution should be analyzed andunderstood in social, legal, and economic contexts. Japan has a different social and legal system
as well as different methods of financing as compared with other advanced countries. During theten years that were significantly influenced by the Accounting Big Bang, Japanese managers’
attitudes toward the IFRS may have changed given the changing environment. I conducted two
similar investigations in 1997 and 2005 before conducting the 2008 investigation. By analyzing
the data from the 2008 investigation and comparing the results with those of the two former
investigations, I attempted to provide useful evidence for the future of standards setting.
The questionnaire consisted of three parts:
(1)
(2)
(3)

Opinion on capital markets and users of financial statements;
Attitude toward and opinion on the adoption of the IFRS; andThe present situation regarding the IFRS adoption or application.

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The sample selection and collection of responses of each investigation are summarized asfollows.
(1)

(2)

(3)

In the 1997 investigation, a questionnaire was forwarded to the CFO oranother senior manager in the accounting or treasury department of 753
multinational non-financial companies in 11 countries. Among them were200 Japanese companies. The selection was based on company size (asmeasured by sales) from Fortune Global 500 and other companies’ lists.
Two hundred and twenty-eight useful responses were received, among
which were from 84 Japanese companies. The total response rate was 30%
while the Japanese company response rate was 42%.
In the 2005 investigation, the sample companies included the top 500 (asmeasured by sales) companies listed on the Tokyo Stock Exchange. One
hundred and twenty-three useful responses were collected (response rateof 24.6%). Since the respondents were spread across a range of different
industries and included the largest companies, the data offered a
representative sample of the Japanese economy.
The 2008 investigation selected 500 companies, of which 64 wereJapanese companies based on sales rank from the Fortune Global 500 of
2006. The questionnaires were sent to the CFO or to senior managers. One
hundred and twenty-one useful responses were received (response rate of
24.2%), of which 58 were Japanese companies (response rate of 90.6%).

In the present study, I only compared data on Japanese companies. Although the sample
sizes for the 1997 investigation, the 2005 investigation, and the 2008 investigation weredifferent, the subjects in all of these investigations were large companies. As almost all Japanesecompanies selected were large as measured by sales, there was an overlap in the selectedcompanies for each investigation, even though the scale of each investigation differed.
Furthermore, the questionnaires used were similar (the 2008 questionnaire included morequestions), enabling a comparison on most of the items. It is worth noting that each
investigation’s background was quite different. The 1997 investigation was conducted at the startof the Big Bang and the convergence of accounting standards. The 2005 investigation was
conducted when interested parties showed a passive stance toward adopting the IFRS, while the2008 investigation was conducted after agreement with the IASB and Accounting Standards
Board of Japan (ASBJ) was reached on overall convergence with the IFRS. The Kruskal-Wallis
test was used as the data were not normally distributed.
RESULTS AND ANALYSIS
The respondent percentages reported in this paper were based on the total number of
responses to the questions. The design of the questionnaire allowed multiple answers for somequestions. Consequently, the combined response percentages for some questions may exceed
100%.

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(1)

Opinions on capital markets and users of financial statements

The first question sought to establish managers’ views on the importance of domestic andoverseas stock markets to their companies, as well as the importance of the stock market and thebond market. In the 2005 and 2008 questionnaire, a five-point Likert scale was used as ameasurement tool (with 1 = not important at all, 3 = not so important, and 5= very important). In
the 1997 questionnaire, a three-point Likert scale was used (1 = very important, 2 = important, 3= not important). When the 1997, 2005, and 2008 data were compared, the 2005 and 2008 data
have been modified to be comparable with the 1997 data.
As shown in Figure 4, the domestic market was regarded by 65% of respondents as being
very important to their business activities, while 53% of respondents indicated that the domestic
bond market was very important. Overseas markets were not considered to have the same
importance as domestic markets, as only 29% of respondent rated overseas stock markets aseither important or very important. The majority of the respondents rated overseas markets as
being not as important relative to domestic markets. Generally, the domestic stock market was
regarded as the most important market compared with other markets.
When the 1997, 2005, and 2008 data were compared, the following two points became
clear (see Table 5). First, Japanese companies have still been great importance to the domestic
stock market (see the first line of Panel A). Second, it is quite clear that compared with the 2005
data and the 2008 data, Japanese companies attached greater importance to overseas markets in2008 (see the two lines on the bottom-right corner of Panel B).
Figure 4 Importance of Markets to Japanese Business Operations (2008)

Table 5 Comparison on Importance of Markets
Panel A: One-way ANOVA

Domestic stock market
Domestic bond market
Overseas stock market
Overseas bond market

1997
average
1.4524(n = 84)
1.5432(n = 81)2.0370(n = 81)1.7654(n = 81)2005
average
1.3902(n = 123)
1.9187(n = 123)
2.5935(n = 123)
2.5366(n = 123)

2008
average
1.4211(n = 57)
1.7193(n = 57)
2.1250(n = 56)
2.1607(n = 56)

Kruskal-Wallis test
(two-tailed)
0.60910.0036***0.0001***0.0001***

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Table 5 Comparison on Importance of Markets
Panel B: Multiple comparison (modified with Bonferroni’s correction)
1997–2005
1997–2008
2005–2008
Domestic bond market
0.0007***0.34880.0975
Overseas stock market
0.0000***0.42940.0001***
Overseas bond market
0.0000***0.0038**0.0019***Note: (1)*, **, and *** denote significance levels of 10%, 5%, and 1%, respectively.
(2) In the 1997 questionnaire, a three-point Likert scale was used (1 = very important, 2 = important, 3= notimportant). The 2005 and 2008 data have been modified to be comparable with the 1997 data.

Figure 6 Perceived Importance of Financial Statements to Users (2008)

The perceived lower importance of overseas markets may suggest that Japanesecompanies pay relatively little attention to overseas users of financial statements, which may
create little incentive to adopt international accounting standards. To confirm this, the second
question in the questionnaire used a similar five-point Likert scale (with 1 = not important at all,3 = not so important, and 5= very important) to determine how CFOs or senior managers viewed
the importance of financial statements to various users (see Figure 6).
Figure 6 shows that respondents believe financial statements to be important to mostusers. Generally, respondents expressed their assessment that financial statements are more
important to domestic investors than to overseas investors. However, they do believe that
financial statements are important even for overseas investors. For investor in the domestic stock
market, 42% of respondents believe that financial statements are very important to individual
investors in the stock market, while 70% believe that financial statements are very important toinstitutional investors. However, for investors in the overseas stock market, 60% of respondents
believe that financial statements are important to institutional investors while only 26% regard
them to be very important to individual investors.
Interestingly, panel B (Table 7) demonstrates that Japanese managers’ views on theimportance of financial statements to users changed dynamically during the ten years between
1997 and 2008. However, managers’ perception that financial statements are most important toJournal of International Business Research, Volume 10, Special Issue, Number 2, 2012

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domestic institutional investors compared with other users remained unchanged during the past
decade, which is illustrated in the first line of Panel A of Table 7.
Table 7 Comparison on Perceived Importance of Financial Statements to Users
Panel A: One-way ANOVA
Kruskal-Wallis
1997
2005
2008
test
averageaverageaverage(two-tailed)1.42171.41461.3333
Domestic institutional investors: stock market
0.5823(n = 83)(n = 123) (n = 57)
1.5125
1.9512
1.6964
Domestic institutional investors: bond market
0.0012***(n = 80)(n = 123) (n = 56)
2.00001.70731.7018Domestic individual investors: stock market
0.0023***(n = 82)(n = 123) (n = 57)
2.12502.20492.0714
Domestic individual investors: bond market
0.4613(n = 80)(n = 123) (n = 56)
1.45781.8293
1.5789Overseas institutional investors: stock market
0.0023***(n = 83)(n = 123) (n = 57)
1.56252.22761.8750Overseas institutional investors: bond market
0.0001***(n = 80)(n = 123) (n = 56)
1.92682.17392.1579Overseas individual investors: stock market
0.0353**(n = 82)(n = 115) (n = 57)
2.00002.46962.3750Overseas individual investors: bond market
0.0001***(n = 80)(n = 123) (n = 56)
Panel B: Multiple comparison (modified with Bonferroni's correction)
1997–2005
1997–2008
2005–2008
0.0003***0.27710.0603
Domestic institutional investors: bond market
0.0012***0.0052**0.9799Domestic individual investors: stock market
0.0008***0.59460.0350Overseas institutional investors: stock market
0.0000***0.0322*0.0097**
Overseas institutional investors: bond market
0.0132*
0.05330.9335
Overseas individual investors: stock market
0.0000***0.0016*** 0.4001
Overseas individual investors: bond market
Note: (1) *, **, and *** denote significance levels of 10%, 5%, and 1%, respectively.
(2) In the 1997 questionnaire, a three-point Likert scale was used (1 = very important, 2 = important, 3 = notimportant). The 2005 and 2008 data have been modified to be comparable with the 1997 data.

I also investigated foreign ownership of each company. Only 10% of respondents statedthat they had no overseas investments, while 48% of respondents, the largest group, stated that
their foreign ownership was within “1–10%,” 12% of respondents chose “11%–20%,” 20% of
respondents chose “21%–40%,” and 10% chose “over 40%.”(2)

Attitude toward and opinion on the adoption of IFRSThe survey asked respondents to select one of three options on the proper approach toadopt international accounting standards. The three options were the following: (1) only adopt
the IFRS or U.S. GAAP, (2) use both the IFRS (for overseas use) and Japanese GAAP (fordomestic use), and (3) use international accounting standards as a supplementation to Japanese
GAAP. In 2008, forty-one percent of respondents preferred to adopt only the IFRS as the basic
financial statements standard and 29% of respondents preferred to use Japanese GAAP as a
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supplementation to IFRS. Only 11% chose using both IFRS and Japanese GAAP, which was
likely a result of the high cost of using two standards and the complication of practices.
Figure 8 shows the importance of IFRS and Japanese GAAP difference by area in 2008.
It seems that the areas of “Goodwill”, “Comprehensive income” are the very importantdifferences between IFRS and Japanese GAAP. Since the 1997 questionnaire included only
standards for financial instruments and foreign exchange, the comparison among 1997, 2005,
and 2008 can only be performed within these two areas. The results, shown in Table 9
demonstrate that the difference between Japanese GAAP and IFRS are thought to be lessimportant in 2008 than in 2005.
I also asked respondents to state their opinions on the change in the application ofinternational accounting standards five years from now. Most respondents expected that the useof the IFRS would increase for both consolidated and separate parent company financial
statements, and only in consolidated financial statements as well as supplementary disclosures.
The minority of the respondents considered that the IFRS would be adopted only for parent
company accounts. If the expectation of these respondents is correct, they will need to plan totransition to the IFRS.
Figure 8 The Importance of IFRS and Japanese GAAP Differences by Area (2008)

Table 9: Comparison on the Importance of IFRS versus
Japanese GAAP Differences by Area
Panel A: One-way ANOVA
1997
2005
2008
averageaverageaverage
1.7073
2.57852.1636
Financial instruments(n = 82)(n = 121)(n = 55)
1.95002.61162.5455
Foreign currency exchange(n = 80)(n = 121)(n = 55)

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Kruskal-Wallis test
(two-tailed)
0.0001***0.0001***

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Table 9: Comparison on the Importance of IFRS versus
Japanese GAAP Differences by Area
Panel B Multiple comparison (modified with Bonferroni's correction)
1997–2005
1997–2008
0.0000***0.0003***Financial instrument
0.0000***0.0000***Foreign currency exchange

2005–2008
0.0003***0.5640Note：(1) *, **, and *** denote significance levels of 10%, 5%, and 1%, respectively.
(2) In the 1997 questionnaire, a three-point Likert scale was used (1 = very important, 2 = important, 3 = notimportant). The 2005 and 2008 data were modified to be comparable with the 1997 data.

Table 10 Comparison on Expectations of Future Application of IFRS
Panel A: One-way ANOVA
1997
2005
2008
Kruskal-Wallis test
averageaverageaverage(two-tailed)(1) Application only in consolidated
1.71952.1186
1.58180.0001***
financial statements(n = 82)(n = 118)(n = 55)(2) Application only in parent company’s
2.94942.46612.32080.0011***
separate financial statements(n = 79)(n = 118)(n = 53)(3) Application in both consolidated and2.40512.25001.85450.0001***parent financial statements(n = 79)(n = 120)(n = 55)(4) Application only in supplementary
2.30262.13452.47170.0028***
disclosure(n = 76)(n = 119)(n = 53)
Panel B: Multiple comparison (modified with Bonferroni’s correction)
1997–2005
1997–2008
2005–2008(1) Application only in consolidated
0.0000 ***0.12790.0000***financial statements(2) Application only in parent company’s
0.0002 ***0.0001***0.2777
separate financial statements(3) Application in both consolidated and
0.19390.0000***0.0008***parent financial statements(4) Application only in supplementary
0.33560.0141**0.0008***
disclosure
Note: (1) *, **, and *** denote significance levels of 10%, 5%, and 1%, respectively.
(2) A three-point Likert scale was used (1= considerably increase, 2= increase, 3= no change).

As shown in Panel A of Table 10, an increase in the number of respondents with two
expectations occurred from 1997 to 2008 (2.95>2.47>2.32; 2.41>2.25>1.85). The two
expectations are (2) Application only in parent company’s separate financial statements and (3)Application in both consolidated and parent financial statements (see Table 10). It appears thatan increasing number of respondents considered adopting IFRS in a parent company’s separate
accounts and consolidated financial statements.
(3)

The present situation on IFRS adoption or application

The survey then asked whether respondents agreed with the statement that it would be
difficult to transition from Japanese GAAP to the IFRS. The Table 11 shows the results in 2008.
As illustrated in Table 11, 29% of respondents believed that it would be difficult to transition
from Japanese GAAP to the IFRS in 2008. Only two out of 58 usable respondents reported that

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they are currently adopting the IFRS. Only two other Japanese companies responded that theyplanned to adopt the IFRS although they were not using it at that moment. However, the vast
majority (93.1%) of the respondents noted that the IFRS was not being adopted and they were
unsure whether they would adopt it in the future.
I asked respondents who indicated that they had not yet adopted the IFRS to explore themain reason for not adopting it. The reasons suggested by respondents were as follows: (1) the
cost was too high (six respondents), (2) there was inadequate staff training system (14respondents), (3) the international accounting standards are inconsistent with Japanese
accounting standards (22 respondents), (4) there is little benefit in adopting international
accounting standards (13 respondents), (5) adopting IFRS was not legally required (30respondents), and (6) other (8 respondents). Multiple choices were allowed, and respondents
could cite other reasons. It became clear that lack of a legal requirement was the main reason for
the uncertainty in the future adoption of the IFRS.
Table 11 Difficulty of Transitioning from Japanese GAAP to IFRS (2008)

I then used the five-point Likert scale to measure respondents’ perceived importanceconcerning the benefits of adopting IFRS. The expected benefits are as follows: (1) improve thetrust and understanding of securities investors, (2) improve the trust and understanding of bondinvestors, (3) make it easier to issue securities in international markets, (4) reduce the cost ofraising bond capital, (5) improve the international image of the company, (6) reduce the barriers
to listing on overseas stock markets, and (7) reduce the cost of creating financial statements.
The majority of the respondents perceived that the most important benefits of adopting
the IFRS were to “make it easier to issue securities in international markets” (61%), “improve
the trust and understanding of securities investors” (58%), and “reduce the barriers to listing on
overseas stock markets” (51%) in 2008. It is obvious that the greatest benefit in adopting the
IFRS is related to international markets, international status, and international fundraising. Only
9% of respondents believe that “reduce the cost of making financial statements” was animportant or very important factor.

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Table 12 Comparison on Benefits of IFRS Adoption
Panel A: One-way ANOVA
1997
2005
2008
averageaverageaverage(1) Improve the trust and1.65522.4333
2.1754
understanding of stock investors(n = 29)(n = 120)(n = 57)(2) Improve the trust and1.62072.51672.2105understanding of bond investors(n = 29)(n = 120)(n = 57)(3) Make it easier to issue securities in
1.76672.18332.0702international markets(n = 30)(n = 120)(n = 57)(4) Reduce the cost of raising bond
2.16672.70592.5965
capital(n = 30)(n = 119)(n = 57)(5) Improve the international image of
1.80002.29752.4035the company(n = 30)(n = 121)(n = 57)(6) Reduce the barriers to list on
1.96672.24792.1228overseas markets(n = 30)(n = 121)(n = 57)(7) Reduce the cost of creating
2.68972.93392.8772
financial statements(n = 29)(n = 121)(n = 57)
Panel B: Multiple Comparison (modified with Bonferroni’s correction)
1997–2005
1997–2008(1) Improve the trust and
0.0000***0.0035***understanding of stock investors(2) Improve the trust and
0.0000***0.0008***understanding of bond investors(3) Make it easier to issue securities in
0.0087***0.1062international markets(4) Reduce the cost of raising bond
0.0000***0.0030***capital(5) Improve the international image of
0.0004***0.0001***the company(7) Reduce the cost of creating
0.0002***0.0276*
financial statements

Kruskal-Wallis test
(two-tailed)
0.0001***0.0001***0.0367*0.0001***0.0003***0.18640.0010***2005–2008
0.04620.0126**

0.42660.28210.44140.3222

Note: (1) *, **, and *** denote significance levels of 10%, 5%, and 1%, respectively.
(2) In the 1997 questionnaire, a three-point Likert scale was used (1 = very important, 2 = important, 3 = notimportant). The 2005 and 2008 data were modified to be comparable with the 1997 data.

Figure 13 Cost-benefit Analysis of IFRS Adoption (2008)

Interestingly, the perceived benefits from adopting the IFRS changed over the years. To
be specific, respondents from the 2008 investigation had more negative beliefs about adopting

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the IFRS and perceived fewer benefit than did respondents in 1997. For example, in 1997,
Japanese managers regarded “improve the trust and understanding of stock investors” as a very
important benefit, while in 2008, they did not attach great importance to it. One reason for thismay be that managers after 1997 fully realized the achievement of accounting convergence
toward the IFRS through the Accounting Big Bang. This trend may also be observed in the
expected benefits items (1)–(5) and (7), as shown in panel B of Table 12.
Table 14 Comparison on Cost-Benefit Analysis of IFRS Adoption
Panel A: One-way ANOVA
1997
2005
2008
Kruskal-Wallis test
averageaverageaverage(two-tailed)2.8571
3.89833.63640.0001***(n = 28)(n = 118)(n = 55)
Panel B: Multiple comparisons (modified with Bonferroni’s correction)
1997–2005
1997–2008
2005–2008
0.0000***0.0026***0.2203
Note: (1) *, **, ***denote significance levels of 10%, 5%, and 1%, respectively.
(2) A five-point Likert scale was used (1= benefit is much more than cost, 3= the same,5= cost is much more thanthe benefit

The questionnaire then asked accounting managers to state their perception of therelationship between costs and benefits. Figure 13 illustrates the results. The respondents showedskepticism over the benefits of IFRS adoption. Indeed, 63% of respondents thought that the costs
would exceed the benefits, while 15% indicate that the costs would almost equal the benefits,
and only 1.8% expected that the benefits would greatly exceed the costs of IFRS adoption.
A comparison of 2008 data with 1997 data showed a stronger expectation of Japanesemanagers that costs would exceed benefits (see Table 14).
Furthermore, as for a principle-based approach or a rule-based approach to adoptinginternational accounting standards, a higher number of respondents regarded a principle-based
approach as more appropriate.
CONCLUSION
The present research investigated Japanese managers’ attitude toward the adoption of the
IFRS in Japanese companies and the changes in attitude over the past ten years after the
Accounting Big Bang. By comparing 2008 data with 1997 and 2005 data, I found the following
five results.
(1)

(2)

Japanese companies have still been great importance to the domestic stock market after
1997 (see Figure 4 and Table 5). Interestingly, it is conflict with the globalization trend in
the Japanese economy, as illustrated by an increase in local manufacturing and sales,
overseas manufacturing, and exportation to third-world countries after 1997.
The difference between Japanese accounting standards and the IFRS has been clearly
perceived by management. This perception changes over time (Figure 8 and Table 9); in

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Page 71

(3)

(4)

(5)

particular, the difference in the standards for financial instruments and foreign currency
exchange is regarded as insignificant, as in the past.
There is growing consideration that the application of the IFRS for separate and forconsolidated financial statements of parent companies should be dealt with separately(Table 10).
Japanese companies have shown a negative attitude to adopting the IFRS, with the main
reason being that there is no legal requirement for such adoption (Table 11). The reason
why Japanese companies did not positively adopt the IFRS may be that Japanesemanagers expect that such an adoption would be difficult. Furthermore, with theconvergence of Japanese standards and the IFRS, Japanese companies in 2008 were more
confident about preparing their financial statements under domestic standards than they
were in 1997. Even without adopting the IFRS, they assumed that they could gain thetrust and understanding of investors (Table 12).
Japanese managers expected that the costs would exceed the benefits for adoption of the
IFRS. This expectation was stronger in 2008 than earlier (Figure 13 and Table 14).

Although the globalization of the Japanese economy, as demonstrated through globalized
manufacturing, marketing, investing, financing (increases in foreign ownership and M&A
activity), and a filtering global standard (accounting standards, corporate governance), madesteady progress, Japanese companies remained prudent and passive with respect to the adoptionof the IFRS. One main reason is that Japan is promoting the accounting standards convergenceproject. It is expected that Japanese standards will be regarded as equivalent to the IFRS when
the project is completed. The accounting standards resulting from the convergence project are akind of “reinvention” according to Roger’s innovation theory (Koga and Rimmel 2007).
On the other hand, there is a continuous increase in the number of countries adopting the
IFRS as their domestic standard (Hu 2005). All listed companies in the EU were required toadopt the IFRS as of 2005. Korea and Canada, after Australia, New Zealand, and South Africa,
decided to adopt the IFRS as of 2011 (Yano 2008). Australia is a special case, as it experienced atwo-stage approach to globalization. The initial approach, commencing in 1996, was toselectively harmonize and converge. However, Australia surprised the world’s standards-setting
community when its standard-setting oversight body unexpectedly announced in 2002 that it
would adopt the IFRS as of 2005. Australia was long perceived as having high accounting
standards. However, the country adopted globally consistent accounting standards at the risk of
sacrificing some degree of high-quality financial reporting that resulted from its own national
standards, as some of the Australian accounting standards are much stricter and are regarded as
more relevant. The initial reaction of the Australia Accounting Standards Board and the business
community was shock, then denial and anger, and then finally acceptance.
The IFRS, as an innovation of institution, is relatively new to Japanese managers familiar
with domestic standards. Results of the present study indicate an important reason for managers’
refusing to adopt the IFRS—they believe that the costs related to adoption would exceed thebenefits. Moreover, this perception is much stronger that that shown in the 2008 investigation. In
fact, the “it is not legally required” (52%) reason is more critical than the “the cost is too high”

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Page 72(10%) reason. This demonstrates a passive but acceptable attitude of Japanese companies toward
the adoption of the IFRS.
Whether or not I like it, the Japanese accounting environment is advancing toward
globalization. Financial Services Agency of Japan demanded the Japanese companies to comply
IFRS voluntarily as from 2010 (Hu 2011). With this background, the adoption of the IFRS is the
expected next step after the completion of the convergence. To continue the globalization trend,
constructing an accounting institution and training system based on IFRS becomes critical.
AUTHOR’S NOTE
I thank Koga, Chitoshi (Doshisha University), Yao, Jun (Listumei University), and Igarashi, Norio(Yokohama National University) for assisting in the data collection of this study.

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