DP2016-35

The Role of Local A ccou nting Standard
Setters in Institutiona l C om plexity:
ʻExplosionʼ of Local Standards in Ja pan
Saori MATSUBARA
Takahiro EN DO
November 17, 2016

The role of local accounting standard setters in institutional complexity:‘Explosion’ of local standards in Japan 1
Saori Matsubara
Department of Business Administration
Tokai University
Saori.matsubara07@gmail.com
Takahiro Endo
Research Institute for Economics and Business Administration
Kobe University
Endo.takahiro@gmail.com

PurposeThe paper intends to locate the role of local standard setters in institutional complexity,
where multiple sources of pressure for change and continuity coexist. The existing
research does not fully explore this since it tends to illustrate the way in which aparticular interpretation concerning certain accounting standards prevails over time
(Archel et al., 2011; Murphy and O’Connell, 2013; Pelger, 2015; Young, 2014).
Design/methodology/approach
It empirically examines and critiques the Japanese experience through the concepts ofinstitutional complexity and translation that specify the relationship between the nameand types of practice of accounting standards in the local context (Czarniawska andSevón, 1996, 2005; Erlingsdóttir and Lindberg, 2005; Røvik, 2016; Sahlin and Wedlin,
2008). Data sources are texts produced (between 2001-2015) by the local accounting
standard setter and relevant organisations that represent firms, the certified public
accountants and regulatory agency, respectively.
Findings
The local accounting standard setter in Japan was exposed to competing pressures
1

The authors would like to thank Prof. Lee Parker and two anonymous reviewers. Also, the authors

appreciate comments on earlier versions of this article by Crawford Spence sensei, Yuki Tsuboyama, Keishi
Fujiyama, Daisuke Uchida, Jingqi Zhu, John Dumay, Masayoshi Noguchi and Katsuhiko Kokubu.

1

between change and maintenance, which was translated by the standard setter in Japan.
Consequently, the translation led to an ‘explosion’ of local accounting standards (‘pure’
IFRS, Japanese GAAP, modified IFRS and US GAAP).
Originality/value
This article is the first attempt to systematically examine the role of a local standard
setter under institutional complexity. It illustrates how institutional complexity is turned
into divergent outcomes against the assumption of previous research that indicatesmultiple interpretations of particular accounting standards finally merging into a
specific one.
Key words: IFRS, local standard setter, translation, institutional perspective
Introduction
International Financial Reporting Standards (IFRS) has been adopted in many countries(Cascino and Gassen, 2015). However, the degree of adoption has varied to a great
extent (Nobes, 2015; Nobes and Zeff, 2015; Tsunogaya, Hellman and Scagnelli, 2015;
van Mourik and Katsuo, 2014; Walker, 2010). That is, some major economies including
the US, China, Japan and Switzerland have not required mandatory adoption.
Furthermore, many countries have carved out specific elements of IFRS. Yet, suchvariation concerning the status of accounting standards across the countries has not been
fully examined in relation to the role of local accounting standard setters.
Previous research has not entirely ignored the role of local accounting standard
setters (Archel et al., 2011; Hassan, 2008; Irvine, 2008; Mir and Rahaman, 2005;
Murphy and O’Connell, 2013; Pelger, 2015; Young, 2014; Zeff, 2002). Nonetheless, it
has not fully paid attention to institutional complexity where multiple sources of‘prescriptions’ coexist (Greenwood et al., 2011) and its consequences. In relation toaccounting standards, institutional complexity indicates competing pressures for change
and continuity over ‘appropriate’ accounting standards. The previous research has
limited its analytical focus to the issue that can be merged under a single interpretationof appropriate practice concerning certain accounting standards. Examples include theacceptable practice under the names of sustainability accounting as well as stock
options in financial reporting (Archel et al., 2011; Murphy and O’Connell, 2013; Pelger,
2015; Young, 2014). According to such studies, the due process plays an important partin giving credibility to particular actors’ interest(s), leading to the dominance of aparticular interpretation of standards (Archel et al., 2011; Murphy and O'Connell, 2013;2

Pelger, 2015). Importantly, the standard setter presents the due process as ‘apolitical'
and a technical procedure rather than a political one (Young, 2014). This paper extends
this notion by embracing sources of competing pressures toward the standard setter byrecognising institutional complexity, which results in divergent outcomes.
A set of accounting standards can be conceptualised as a prescription
concerning the method of reporting financial statements. Such a perception of
accounting standards has been increasingly prominent in accounting studies (Archel etal., 2011; Baudot, 2014; Chua and Taylor, 2008; Fogarty, 1993; Georgiou and Jack,
2011; Giner and Arce, 2012; Guerreiro, Rodrigues and Craig, 2012; Holm and Zaman,
2012; Pelger, 2015). On the other hand, the existing literature has not fully explored theimplication of institutional complexity in examining the role of local accounting
standard setters. This paper aims to examine the following two issues: unpicking bothcompeting pressures and local efforts at reconciling. These can be formulated into thefollowing two research questions:
RQ1.What is the institutional complexity that local accounting standard setters
face?
RQ2.How do local accounting standard setters translate those pressures?
Institutional complexity, in this article, will be conceptualised in terms of discourse,
linguistic practice, giving meaning to ideas (Phillips and Hardy, 2002). By recognising
institutional complexity, explicit attention is paid to competing sets of discourse, which
either support or reject the prescription(s) concerning accounting practice that inform
how accounting practice should be arranged. For that, it is crucial to leverage theinsights from those studies focusing upon discursive processes of acquiring social
credibility known as legitimacy. Such processes involve linguistic interactions
concerning the social acceptance of accounting standards (Archel et al., 2011; Bamber
and McMeeking, 2015; Ezzamel, Robson, Stapleton and McLean, 2007). In order tounpick the role of local standard setters, the article sheds light upon translation. The
concept of translation captures how organisations, including local accounting standard
setters, interpret such pressures and accord meaning in the local context that specify thename and actual practice of prescriptions (Czarniawska and Sevón, 1996, 2005;
Erlingsdóttir and Lindberg, 2005; Røvik, 2016; Sahlin and Wedlin, 2008).
This article focuses on the Japanese accounting standard setter’s efforts toreconcile IFRS adoption pressure and maintain local Japanese GAAP (Generally
Accepted Accounting Principles) by translating them in the local context. The angle of3this paper intends to embrace not only pressure for change but also that for maintenance.
That is, the Japanese Accounting standard setter, of the Accounting Standards Board ofJapan (ASBJ) composed of 12 members of corporate executives, CPAs and academics,
facing pressure from related parties. Competing pressures include those for IFRS
adoption as well as to maintain the existing accounting standards widely adopted inJapan. The ASBJ translated such pressures by elaborating the relationship between thename and acceptable practice to be included under the name of particular accounting
standards. Consequently, several options were provided for listed firms in Japan (i.e.,‘pure’ IFRS issued by the International Accounting Standards Board (IASB), Japanese
GAAP that has witnessed chains of modification over the past decade or so, modified
IFRS and US GAAP). Such a wide range of options can be summarised as an‘explosion’ of local accounting standards.
This article firstly explains the theoretical background together with a key
research gap. It justifies the importance of examining local accounting standard settersin relation to institutional complexity. Then, in the method section, the paper illustrates
the detailed sources of data (textual data derived from the ASBJ, representatives offirms, accounting professionals and regulatory agency) and how they were analysed bydrawing on the concepts of institutional complexity and translation. The empirical part
analyses the ASBJ’s translation efforts that aimed to balance competing pressures andresulted in an ‘explosion’ of accounting standards. Finally, the conclusion summarises
the article and clarifies its contribution.
Theoretical background‘Adoption’ of IFRSAs socio-economic interactions across the border become deeper and more frequent,
there has been increasing need for standardisation in the domain of accounting (Brunsso,
Rasche & Seidl, 2012). Consequently, IFRS has been widely adopted as a mandatory
requirement of financial reporting for listed firms in Europe since 2005 and a similar
move has been seen across the globe (Cascino and Gassen, 2015). However, themandatory adoption here does not necessarily mean the adoption of the exact standards
issued by the IASB. Rather, as the previous research indicates, many economies carveout specific elements of IFRS in the local context (Nobes, 2015; Nobes and Zeff, 2015;
Tsunogaya et al., 2015; van Mourik and Katsuo, 2014; Walker, 2010). Furthermore, thelargest three world economies (US, China, Japan) have not requested the mandatory
adoption of IFRS (Nobes and Zeff, 2015). In summary, standardisation activities inaccounting have not necessarily resulted in convergence, but, rather, in divergence.
4However, the existing research has not provided insights into how such variation can beunderstood in relation to the role of local accounting standard setters.
That said, previous research has not entirely ignored the role of local
accounting standard setters (Archel et al., 2011; Hassan, 2008; Irvine, 2008; Mir andRahaman, 2005; Murphy and O’Connell, 2013; Pelger, 2015; Young, 2014; Zeff, 2002).
These studies draw upon the institutional perspective in organisational analysis, which
has highlighted the role of social acceptability or credibility, known as legitimacy, in the
diffusion of a prescription that guides practice (Scott, 2014; Smet et al., 2012).
Legitimacy concerning a particular prescription is accorded by certain arrangements oflegal, normative and/or cognitive elements. Legal arrangements would be represented
by ‘visible’ legislation or regulation, while normative and cognitive arrangements may
be ‘invisible’, since these are often exemplified by social norms and values, respectively.
By drawing from the institutional perspective, the accounting standard could beconsidered as a prescription or a set of principle ideas that inform how accounting
practice should be arranged.
Previous research has provided useful insights into the role of legitimacy inrelation to local standard setters. However, it predominantly examines the process that
results in consensus between the name and appropriate practice of particular accounting
standards (homogeneity) rather than exploring the process that produces variety(heterogeneity) (Archel et al., 2011; Murphy and O’Connell, 2013; Pelger, 2015; Young,2014). For example, Archel et al. (2011) illustrate a particular version of ‘sustainableaccounting' prevailing over time in Spain. Similarly, Young’s (2014) research on the US
highlights how the competing interpretations of ‘stock option’ in relation to financial
reporting (i.e., acceptable or not) are finally converged under a specific one. Regarding
this, previous studies have indicated that the due process, allegedly an important process
for creating, changing and abolishing accounting standards, actually plays a significant
role in legitimating particular actors’ interest(s) (Archel et al., 2011; Murphy and
O'Connell, 2013; Pelger, 2015). The standard setter treats the due process as ‘apolitical'
and a technical process rather than a political one (Young, 2014).
Young (2014), by drawing upon Mary Douglas’s (1966) work dealing with theboundary between ‘clean’ and ‘dirty’, examined the role of the FASB, the US local
accounting standard setter, in relation to the domain of the political and the technical inaccounting standard setting. Young's analysis focused on the testimony concerning
share-based compensation in the US Congress. Most importantly, her study indicatesthat the FASB intended to present them predominantly guided by ‘clean' and unbiased
or technical motivations rather than ‘dirty’ and biased ones.
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Our work is related to Young (2014) in that we also focus upon the standard
setter’s ‘dirty’ motives in standard setting activities. However, our work takes thisnotion a step further by embracing multiple sources of pressure to the standard setter aswell as how they respond to them.
Institutional complexity as competing sets of discourse
However, previous research has not fully paid attention to institutional complexity
where multiple sources of ‘prescriptions’ coexist (Greenwood et al., 2011). Local
accounting standard setters are exposed to competing pressures for change andmaintenance concerning accounting standards.
In order to embrace institutional complexity, it would be necessary to pay
attention to multiple sources of pressure. The competing pressures, namely pressure forchange and maintenance, is exerted toward local accounting standard setters. That is,while they exert pressure for change and maintenance to other organisations in the local
context, they are exposed to a similar sort of pressure derived from both domestic andinternational organisations. As Fligstein and McAdam (2012) rightly point out, theorganisation resides in multi-layered pressure for change and maintenance. For local
accounting standard setters, they have pressure exerted either in international or local
contexts. At an international level, international relationships play a vital part, while at a
local level, inter-organizational relationships in the domestic setting do.
In order to embrace competing pressures, this article utilises the concept of
discourse. Discourse is defined as structured sets of text that provide meanings toentities (Phillips and Hardy, 2002), including, importantly, prescriptions for accounting
practice. In fact, in the accounting research that draws on the institutional perspective, it
has been increasingly prominent that pressure for change as well as for maintenance canbe conceptualized in terms of discourse (Archel et al., 2011; Bamber and McMeeking,2015; Ezzamel et al., 2007; Laine, 2009; Suddaby and Greenwood, 2005). According tosuch study, pressure for maintenance is equivalent to particular discourse that highlights
legitimacy of the existing prescription, while for change it is the necessity oftransforming it.
Moreover, discourse analytic conceptualization of competing pressures has
been applied at various levels, including at the organisational level (Laine, 2009) andinter-organizational level (Suddaby and Greenwood, 2005). In particular, the latter levelof analysis justifies the attention of this article, namely, to relationships between local
accounting standard setters and relevant organisations, which will be further explicatedin the following sections.
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Translation
Local accounting standard setters interpret discourse that either supports or rejects theaccounting standard(s). Such interpretation may be called translation (Czarniawska andSevón, 1996, 2005; Erlingsdóttir and Lindberg, 2005; Røvik, 2016; Sahlin and Wedlin,
2008). This view has, in particular, been developed by a group of scholars often known
as the Scandinavian School of institutionalism with its primary focus on the process ofinstitutional dynamics. Most importantly, such translation may result in homogenization(isopraxism) as well as heterogenization (isonymism) (Erlingsdóttir and Lindberg,2005). Erlingsdóttir and Lindberg (2005) exemplify such a process concerning medical
practice. Their analysis pays attention to the name and appropriate practice of newprescriptions
thatemphasise
efficiency,
representedby‘quality
assurance’, ’accreditation of laboratories’ and ‘chain of care’. Their analysis reveals theimportance of how the name and the practice are delivered to the organisation (i.e., at
the same time or separately) as well as how the local organisation interprets the meaningof practice.
Translation of discourse concerning accounting standards such as IFRS bylocal accounting standard setters also involves meaning accordance that specifies thename and actual practice of standards. Compulsory adoption of ‘pure’ IFRS as well as
carving out specific elements of IFRS may be contrasting the difference of translation
by local accounting standard setters. The former and the latter might be under the same
name, IFRS, but the actual practice would be significantly different (i.e., the former
should be more or less identical to standards issued by the IASB, while the latter could
be largely different from the ‘original’ ones).
Although the Scandinavian school would be useful in understanding the actual
process and divergent consequences of pressure for change and continuity, they do notnecessarily pay explicit attention to competing sets of discourse or institutional
complexity. It should be noted that the primary focus of this article lies in embracing
multiple and competing sets of pressure for change and continuity (institutional
complexity), and local accounting standard setters’ responses to them. The concept oftranslation would be particularly helpful to elaborate standard setters’ responses toinstitutional complexity. However, again, the concept would be insufficient toadequately address institutional complexity.
To recap, this article adopts the institutional perspective in extending theexisting understanding concerning the dynamics between accounting practice andsocially accepted prescriptions. By drawing upon the concept of institutional complexity,
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this article embraces competing pressures. Furthermore, the concept of translation helps
to capture the role of local standard setters under competing pressures that may result in
not only homogeneity but also heterogeneity.
MethodOverview
As seen above, the article aims to provide insights into the role of local accounting
standard setters in the context of institutional complexity. For this purpose, the article
focuses upon the ASBJ, which was exposed to both pressures for change and formaintenance. The data used for the analysis was textual data from the ASBJ andrelevant organisations that were primary sources of competing pressures. Regardingtranslation by the ASBJ, textual data released by the ASBJ was examined. The ASBJ
itself issued outline minutes of their meetings as well as reports that inform the
trajectory of accounting standards in Japan. In terms of pressure for change and that for
maintenance exercised toward the ASBJ, these were observable from textual data
produced by relevant organisations (the regulatory agency, representative of accounting
professionals, and representative of firms).
The actual process of analysis was two-fold. At the first stage, relevant textual
data were explored and efforts were made to make sense of institutional complexity andthe ASBJ’s translation, which led to the ‘explosion’ of accounting standards in Japan.
Consequently, it was found that institutional complexity could be elaborated by further
examining sets of discourse for change and maintenance that either supported or
rejected the new and existing accounting standards. On the other hand, the ASBJ’stranslation could be investigated by observing name and appropriate practice ofparticular accounting standards, including IFRS and Japanese GAAP. In terms of therole of the local accounting standard setter, the observed ‘explosion’ of accounting
standards in the country was also found in the existing empirical investigation reporting
the status of the IFRS adoption in Japan (Tsunogaya et al., 2015). Therefore, efforts
were made to make sense of the ASBJ’s involvement in this.
At the second stage, further relevant data were explored and examined andthemes of institutional complexity as pressure for change and maintenance and the
ASBJ’s translation were fleshed out. For the systematic analysis of textual data, the data
was analysed between July 2001 and July, 2015. This is because the ASBJ became an
official standard setter in the Japanese accounting field at the beginning of the 2000s(July 2001). Furthermore, the analysis of data up to July 2015 would be appropriate
since “Japan’s Modified International Standards (JMIS): Accounting Standards
8Comprising IFRSs and the ASBJ Modifications” (hereafter called ‘JMIS’) were releasedin June 2015. Moreover, 15 years of data would be reasonably long enough to embrace
the above issues. In what follows, key textual data in each theme is explained.
Institutional complexity as pressure for change and maintenance
The local standard setter, the ASBJ, was exposed to both pressures for change andmaintenance. In particular, competing pressures were locally observed in the country,
from the regulatory agency, accounting professionals, and firms. As seen in Table 1, thetextual data concerning competing pressures were classified into the following four
categories: mutual authentication, modification, carve out and active acceptance. Mutual
authentication and modification belong to pressure for maintenance, while carve out andactive acceptance pressure for change.
TABLE 1 HERE
In terms of the regulatory agency, the Financial Services Agency of Japan(FSAJ) played a key part; before July 2001, the accounting standard setting wasundertaken by FSAJ. In particular, the Business Accounting Council (Kigyokaikei
Shingikai) of FSAJ was in charge of regulating accounting standards. Between 2000 and2015, the Council held several meetings every year. Consequently, they produced thefollowing reports, which are available via their website: “Toward the convergence ofaccounting standards” (2006), “Regarding the treatment of IFRS in Japan” (2009) and“Current policy concerning responses to IFRS” (2013).
For the representative of firms, this paper focuses upon Keidanren (Japan
Business Federation). Keidanren represents over 1,000 member firms. These arebasically large Japanese firms, including major manufacturers (Toyota, Nissan, Honda,
Hitachi and Toshiba). Historically, Keidanren played an important part in the formationof the Japanese industrial policy (Fletcher III, 2012). With respect to accounting
standards, Keidanren expressed their views occasionally between 2000 and 2014, whichwere available from their website.
Regarding accounting professionals, the JICPA (Japanese Institute of Certified
Public Accountants) represents the interests of CPAs in Japan. The JICPA’s bulletin ispublished every month in printed format. Importantly, the January issue of this bulletin
contained an article titled ’The review of the previous year and the outline of annual
plans for the coming year’ written by the then president of the JICPA. It was assumed
that these articles represented the views of JICPA and thus were examined between
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2000 and 2014 in relation to IFRS.
ASBJ’s translation
Throughout the analytical period, importantly, the background of ASBJ’s 12 members
included the following three different categories: executives of Keidanren member firms,
CPAs and academics 2. It is reasonable to argue that executives of Keidanren member
firms represented Keidanren’s interests, while CPAs the JICPA’s. Furthermore,accounting scholars played the central part in the accounting standard setting process,appointed as the FSAJ’s committee members before the ASBJ became an independent
standard setter in the early 2000s (Hatta, 2016). Therefore, of these three categories ofmembers, academics in accounting would be closest to the FSAJ in terms of the opinion
they held regarding the change and continuity of accountings standards in Japan.
Therefore, amid the above competing pressures, it was clear that ASBJ translated suchpressure in three different ways. As summarised in Table 2, these were ‘modification’,‘optional adoption’, and ‘new standards’:
Modification‘Modification’ indicates that the name of the Japanese GAAP should remain,
while the existing practice specified under the name needs to be modified.
Optional adoption‘Optional adoption’ is about the relationship between IFRS (name) and thescope of application of it (practice) in the Japanese context.
New standards‘New standards’ involves new name and practice.
In a nutshell, ASBJ’s translation resulted in the ‘explosion’ of accounting
standards since they initially put emphasis on modifying the Japanese GAAP, thenstarted to add options for optional adoption of IFRS as well as the modified version of
IFRS known as JMIS. For this examination, we relied on documents obtained from
ASBJ’s websites that list outlines of minutes of meetings held at least once per month(316 meetings were held during the analytical period between July 2001 and July

In 2014, for example, then the ASBJ’s members were four CPAs, seven executives of
Keidanren firms and one academic.
210

2015) 3, together with key documents, including press releases, concerning JMIS. We
carefully read through these and learnt that ASBJ’s meeting spent most of the time
discussing the modification of the Japanese GAAP interpreted as maintaining theJapanese GAAP, and spent some time on developing JMIS 4, which contributed toincreasing the variety of accounting standards in the country.
TABLE 2 HERE
Based on these thematic classifications and data mentioned above, we further fleshedout the empirical part. The analysis will be shown in detail in the next section.
Analysis: ‘Explosion’ of accounting standards
Competing pressures
The IASB’s pressure for adopting IFRS has been constantly observed. That is, thescrutinised documents referred to the importance of IFRS in terms of socio-economic
issues such as an increasingly internationalised world economy. In addition to this,pressure derived from the US cannot be ignored (i.e., the FSAJ and Keidanren, inparticular, was significantly influenced by the US, which was explicitly mentioned in
the relevant textual data we analysed). Against the backdrop of these international
relationships, domestic pressure for change and maintenance was analysed byexamining sets of discourse, which will be illustrated next.
FSAJ
The FSAJ’s discourse embraced modification, carve out and active acceptance, which issummarised in Table 3. Initially, the FSAJ’s discourse concerning accounting standards
emphasised ‘modification’ or the necessity to modify the Japanese GAAP. However, thediscourse was significantly changed and shifted toward ‘active acceptance’, after the
FASB in the US indicated the possibility to formally adopt IFRS in the country in 2008,
which, according to them, would be later clarified with specific details such as the exact
date to launch the adoption. The FSAJ in 2009 clearly mentioned the possibility tocompulsorily require Japanese firms to adopt IFRS in the future. Again, the FASB
refrained from further pursuing compulsory IFRS adoption for a while, which became
clear around 2010. Consequently, the FSAJ’s discourse also refrained from actively
promoting the compulsory adoption of IFRS and was more inclined to ‘carve out’ and3

https://www.asb.or.jp/asb/asb_j/minutes
The purpose built committee under the ASBJ started to develop JMIS in August 2013. 22 meetings
were held before the release of JMIS in June 2015.

411‘modify’. These, respectively, indicated the necessity to modify the Japanese GAAP aswell as hedge risks by holding various options of accounting standards, including one
that carves out and modifies some parts of ‘pure’ IFRS.
TABLE 3 HERE
Keidanren
Keidanren’s discourse, in the early 2000s, was actively emphasising ‘mutual
authentication’ with other accounting standards such as IFRS and US GAAP (Table 4).
That is, Keidanren took a position that intended to justify the significance of theJapanese GAAP. In particular, Keidanren pointed to Japanese ways of economic
activities, which, according to them, prioritise long-term perspectives. That is,
Keidanren argued that ‘pure' IFRS tends to emphasise the ‘asset-liability’ approach thatis primarily based on balance sheets, which allegedly accelerates short-term
perspectives. In contrast, the Japanese GAAP adopts an ‘income-expense' approach,which, they argued, would be suitable for shareholders with intentions to own stocks ona long-term basis.
However, similar to the FSAJ, Keidanren’s discourse drastically changed to‘active acceptance’ as the FASB indicated an IFRS adoption possibility. Keidaren’s
discourse started to be inclined toward ‘carve out’ and ‘modification’, which intended tomaintain a couple of crucial elements in the Japanese GAAP as the FASB indicatedtheir disinterest in immediately adopting IFRS for the American firms. Specifically,
Keidanren’s discourse emphasised the necessity to maintain the existing treatment of
current net income in the Japanese GAAP. According to Keidanren, the existingtreatment of the current net income was significantly different between IFRS and theJapanese GAAP. Keidanren justified the existing treatment of ‘current net income’ interms of local business custom, which, according to them, was appropriately reflected in
the Japanese GAAP, but not in IFRS. Regarding this, there existed, at least, two crucial
elements, including the treatment of ‘reclassification adjustment’ and ’goodwill’
although the former was explicitly referred to by Keidanren, while the latter was
mentioned implicitly. Keidanren pointed to the importance of maintaining the existing
way of ‘reclassification adjustment’ of comprehensive income, which was not allowed
in IFRS. Historically, Japanese management practices tended to be associated withpreference for long-term investment such as adherence to stable growth rather thanmaximising profits (Endo et al., 2015). For this purpose, it could be considered that‘reclassification adjustment’ provided opportunities for firms to equalise profit (Shuto,
12

2007). Furthermore, while the Japanese GAAP maintained the amortisation of goodwill
at a fixed rate, IFRS did not (but required to do impairment under certain conditions).
Again, for the long-term investment, amortisation of ‘goodwill’ at a fixed rate was
helpful. In brief, these contrasts result in different ‘current net income’ between theJapanese GAAP and IFRS.
TABLE 4 HEREJICPAThe JICPA’s discourse can be classified by ‘active acceptance’, which illustrated thenecessity to change the status quo over the period (Table 5). This can be understood interms of their business opportunities. That is, changes in the status quo concerning theaccounting practice brought business opportunities for CPAs. In the early 2000s,
following US legislation of the SOx act, Japan amended the Financial Instruments andExchange Act, which let Japanese CPAs witness an economic boom. The amendment
required Japanese firms to adopt a new internal control system. Importantly, CPAs
played a vital part in adopting the new system. The adoption of the new system wasmore or less completed in the mid-2000s, which provided an important context forunderstanding the JICPA’s statements (Shibata, 2011). The JICPA needed to seek new
business opportunities since the booming demand was gone. Therefore, it would bereasonable to interpret that JICPA’s statements concerning active acceptance of IFRS
reflected their economic interests.
TABLE 5 HEREASBJ’s translation and ‘explosion’ of accounting standards
The competing pressures are summarised in Table 6. Throughout the 2000s, thecompeting pressures were derived from discourse supporting the Japanese GAAP aswell as the adoption of ‘pure’ IFRS. In more detail, the adoption of ‘pure’ IFRS pressure
was enhanced in the late 2000s, since Keidanren’s and FSAJ’s discourse also supported
the adoption due to the American pressure. However, Keidanren’s and FSAJ’s discourse,
since the US blurred the adoption policy, started to keep their distance from adopting‘pure’ IFRS. Consequently, in the early 2010s, the adoption of ‘pure’ IFRS pressure wasassociated with JICPA, while Keidanren and FSAJ exerted pressure on modifying theJapanese GAAP as well as selective elements of ‘pure’ IFRS.

13TABLE 6 HERE
Importantly, the competing pressures were balanced by ASBJ’s translation, which
ultimately led to the explosion of accounting standards as seen in Table 7. In the early
2000s, the ASBJ was exposed to two opposing pressures that supported the adoption of‘pure’ IFRS (the JICPA) and modification of Japanese GAAP (Keidanren and the FSAJ).
Consequently, they started to launch modification of the Japanese GAAP from thoseelements that would face little resistance in the country. This modification could beunderstood as translation efforts to maintain the name of Japanese GAAP whilechanging certain practice under the name such as the inclusion of comprehensive
income.
In the late 2000s, the ASBJ was subject to pressure derived from discourse
supporting the adoption of ‘pure’ IFRS as well as the modification of Japanese GAAP.
Importantly, at this time, in addition to the JICPA, FSAJ’s and Keidanren’s discourse
partly supported the adoption of ‘pure’ IFRS. In turn, the ASBJ translated the pressure
by further progressing with the modification of Japanese GAAP and allowing for
optional adoption of ‘pure’ IFRS 5. To recap, in terms of translation, the latter (i.e.
allowing for the optional adoption of ‘pure' IFRS) could be understood as retaining thename of IFRS, while changing the existing practice from an excluded option to apossible alternative. However, pressure on adopting ‘pure’ IFRS was, more or less,weakened around the early 2010s and related parties, particularly FSAJ’s and
Keidanren’s discourse, emphasised modification of IFRS as well as Japanese GAAP. In
effect, ASBJ translated such pressure by examining elements of IFRS to be carved out
and modified. In a nutshell, ASBJ’s translation adopted the name of JMIS, released inJune 2015, which, as practice, held certain elements that were significantly different
from ‘pure’ IFRS. Such elements included the perception of current net income, which
was strongly associated with treatments that allowed for adjustment reclassification andamortisation of goodwill at a fixed rate. In summary, as a result of translation, at least
three options were enabled for Japanese firms concerning accounting standards,
including the Japanese GAAP, ‘pure’ IFRS, and JMIS. Furthermore, although it was notaddressed in this article, the ASBJ allowed the usage of the US GAAP for Japaneselisted firms 6. Consequently, Japanese firms had four possible options for their financial
5

More specifically, it was officially approved in March 2010.

6. It was confirmed that international pressures were exerted from the US to the ASBJ and hence several

Japanese firms actually adopted the US GAAP (Eng, Sun and Vichitsarawong, 2013; Tsunogaya et al.,2015). However, this article, as an initial step to provide insights into the role of local standard setters, put
primary emphasis on examining discourse concerning domestic pressures, which were exerted by the14

reporting standards.
TABLE 7 HERE
Conclusion
To recap, the key research gap that this paper aimed to address was that the existing
research had not provided insights into the role of standard setters under institutional
complexity that result in divergent outcomes. That is, the existing research assumes asingle interpretation, out of competing and often conflicting ones, concerning
accounting standards prevailing (Archel et al., 2011; Murphy and O'Connell, 2013;
Pelger, 2015; Young, 2014). In order to address this shortcoming, the paper has
identified two distinctive issues of unpicking competing pressures (RQ1) and local
standard setters' efforts to reconcile such pressure by translation (i.e., elaborating therelationship between name and practice of accounting standards) (RQ2). Competingpressures are addressed by leveraging the insights from those studies focusing upon
discursive processes (Archel et al., 2011; Bamber and McMeeking, 2015; Ezzamel et al.,2007). On the other hand, the role of local accounting standards is addressed by drawing
upon the concept of translation (Czarniawska and Sevón, 1996, 2005; Erlingsdóttir and
Lindberg, 2005; Røvik, 2016; Sahlin and Wedlin, 2008).
Empirically, the Japanese local standard setter, the ASBJ, was exposed tocompeting pressures since their members included CPAs, executives of firms andacademics. Importantly, ASBJ balanced these by translating such pressure andelaborating the relationship between the name and appropriate practice of particular
accounting standards. Consequently, ASBJ increased the options of accounting
standards for Japanese listed firms, which could be summarised as an ‘explosion’ of
local accounting standards.
To our knowledge, this paper is the first article systematically examining therole of local standard setters under institutional complexity that witnessed divergent
outcomes. The existing research sheds light on the role of local accounting standard
setters but does not fully explore the implication of competing pressures (Archel et al.,2011; Hassan, 2008; Irvine, 2008; Mir and Rahaman, 2005; Murphy and O’Connell,
2013; Pelger, 2015; Young, 2014). The article has illustrated the limitation of such a
conceptualization and placed the local accounting standard setters under competingpressures. The findings of this paper suggest that competing pressures are notnecessarily merged under a convergent outcome, where consensus is made regarding theregulatory agency, representatives of firms and accounting professionals.

15

appropriate practice of the particular accounting standards (name). Rather, multiple
sources of pressure coexist long-term and result in divergence regarding name andpractice as seen in this article. Therefore, the role of the local standard setter should becontextualised in the competing pressures derived from local as well as international
contexts.
This article also has certain limitations. Most importantly, although this article
made the most of the available data, the translation process by the ASBJ may be morenuanced. Furthermore, in contextualising the role of local accounting standard setters ininstitutional complexity, this article has put primary emphasis on domestic pressure.
However, there exist clear missing links with international pressures. This interplay
between domestic and international pressures needs to be further elaborated in futurestudies. Additionally, this paper did not fully shed light upon the interaction at a country
level. That is, member countries contribute to the IASB in several ways, including
financially. Therefore, the amount of financial contribution, for example, would
potentially influence the degree of freedom concerning translation of member countries.
These issues may need to be further considered.
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Table 1 Types of discourse
Types

Explanation

Mutualauthentication

Illustrating the necessity to achieve mutual authentication of theJapanese accounting standards with other countries

Modification

Emphasising the importance of modifying certain elements of
the Japanese accounting standards

Carve out

Advocating the necessity of carving out and modifying someelements of IFRS

Active acceptance

Arguing for the acceptance of ‘pure’ IFRSTable 2 Types of translation
Types

Explanation

Modification

Modifying the Japanese accounting standards

Optional adoption

Allowing for optional adoption of IFRS for Japanese firms

New standards

Developing JMIS as new standards that carve out
modify unacceptable elements of IFRS

andTable 3 Financial Services Agency of Japan’s discourse concerning IFRS
Modification

Carve Out

Active acceptance‘It would be necessary to prevent the Japanese ‘There are certain elements in IFRS that do not properly reflect the ‘It would be desirable to specify exact
accounting standard from being incommensurable from business activities of Japanese firms, which would incur an processes to be followed in case theother accounting standards adopted in the rest of the unreasonable cost for firms to adopt…this matter should take into compulsory adoption of IFRS is decided
world. Therefore, Japan needs to actively accelerate the account uncertainty regarding the trajectory of IFRS adoption across for certain Japanese firms...which would‘convergence’ of the accounting standard by modifying the globe, which is exemplified by the US attitude…so, at this stage, it be applied to consolidated financial
certain elements of the Japanese GAAP’ (2006, would be useful to seek possibilities of endorsement, where certain statements,

notindividual

financial“Toward the convergence of accounting standards”) elements are modified and/or removed…[There are already some statements’ (2009, “Regarding the20

Japanese firms that adopt ‘pure’ IFRS, so it would be reasonable to treatment of IFRS in Japan”)‘It is needless to say that the Japanese accounting secure options for adopting ‘pure’ IFRS…which would be useful forstandards should be modified in order to maintain the those firms that already adopted and increase another option for othercompetitive quality as well as making them more firms by customising IFRS, which would be also useful in showing theadaptive to international environments’ (2013, “Current ideal IFRS from the Japanese perspectives’ (2013, “Current policy

policy concerning responses to IFRS”)

concerning responses to IFRS”)

Table 4 Keidanren’s discourse concerning IFRS
Mutual authentication

Modification

Carve Out

‘It would be necessary to actively communicate‘[IFRS] emphasises asset-liability…[the Japanese‘In case IFRS is adopted

in Japan, it‘The US maintained the American

Japan’s viewpoint concerning the accounting standard,

accounting standard prioritises income-expense

would be crucial to put primaryaccounting standard, similar to

not simply following the global trend…the reality ofthat] let firms hold long-term perspectives,emphasis on how to reflect the reality ofJapan in the sense both countries

management practices varies and forcing a single

which, consequently, result in greater benefits forJapanese firms’ management practices

hold their own standards…but theaccounting standard on them may be likely to result inshareholders’ (2006, Official Announcement)

on financial statements’ (2009, Official

US newly included an option to

Announcement)

adopt IFRS for US firms…Japannonsense, where the financial statements do not reflect
what firms are doing’ (2001, Official Announcement)

Active acceptance‘While FASB and IASB participate in mutual
authentication

concerning

accounting

shouldimmediately

specifya‘In terms of management of firms [inprocess to allow Japanese firms tooptionally‘The crucial thing is that Japan, US and Europe have tostandards…Japan also needs to take an active

Japan],

achieve mutual authentication…for example, IASB ispart in this process and make efforts in promoting

appropriately make sense of current net

against the reclassification adjustment, while Japanthe significance of Japanese GAAP, while

income, income and expense, which areshould propose to maintain the existing realisation

modifying the Japanese GAAP’ (2007, Official

obviously not separable from the issue‘In case IFRS is to be adopted on aconcept [that allows the reclassification adjustment]’

Announcement)ofcompulsory basis, it would be(2003, Official Announcement)

the

vital

thing

is

to

reclassification

adjustment…importantly,

IFRS’

(2008

(March), Official Announcement)arenecessary to hold three years, at‘It would be necessary to modify the Japaneselacking in IFRS, which partly explains

least, for the preparation…it would

accounting

achieve

why Japanese firms have not adopted

be vital to keep an eye on the‘convergence’ with other countries [where the

IFRS since it was formally introducedUS’(2008

standard

in

order

to

21

these

adopt

(October),

Official

comparability of accounting standards is securedasapossible

optioninthe

to a great extent], but that has to adhere tocountry’(2011, Official Announcement)

Announcement)

high-quality [that could reflect the reality ofJapanese firms’ management practices]’ (2013,
Official Announcement)

Table 5 JICPA ’s discourse concerning IFRS
Active acceptance‘The accounting standard provides a universal rule that measures activities of firms, which should be the same across the globe and thus be trustworthy.’ (2001, JICPA
Journal)‘JICPA supports Japanese firms to adopt IFRS for Japanese firms…IFRS would be increasingly important in the future, so JICPA would also make every possible efforts
to strategically educate CPAs with good understanding of IFRS’ (2008, JICPA Journal)‘The introduction of IFRS would be an unprecedented large-scale reformation of accounting practices, which further provides conditions where CPAs play bigger andmore important roles. JICPA actively supports Japanese firms adopting IFRS.’ (2009, JICPA Journal)‘JICPA actively introduces relevant information concerning IFRS adoption that includes both domestic and foreign examples, together with proposing various projects to
examine the nature of IFRS’ (2010, JICPA Journal)‘Member organisations of JICPA have established the supporting system to provide relevant firms with insights into the adoption of IFRS…it may appear that the IFRS
is not that rapidly adopted by Japanese firms…but it should be noted that the process is surely on its way’ (2011, JICPA Journal)‘JICPA has made every possible effort to support IFRS adoption for Japanese firms…It is obvious that Japanese and Japanese firms cannot survive in internationalsociety without adopting IFRS’ (2012, JICPA Journal)

22

‘JICPA is clear about accelerating the adoption of IFRS by Japanese firms…for this purpose, JICPA would be willing to disseminate information concerning the adoptionof IFRS and seek ways to generate further environments that encourage the adoption' (2013, JICPA Journal)

Table 6 Trajectory of competing pressure
PeriodStatus of pressure (parties that advocated)

The early 2000s

Modify Japanese GAAP (Keidanren, FSAJ)
Adopt ‘pure’ IFRS (JICPA)

The late 2000s

Modify Japanese GAAP (Keidanren, FSAJ)
Adopt ‘pure’ IFRS (JICPA, FSAJ, Keidanren)

The early 2010s

Modify ‘pure’ IFRS (Keidanren, (FSAJ))
Modify Japanese GAAP (Keidanren, FSAJ)
Adopt ‘pure’ IFRS (JICPA)

Table 7 Translation: ‘Explosion’ of standards and ASBJ
‘As a result of discussion, it would be necessary to begin [modification of the Japanese accounting standards] from those considered to be relatively
Modificationeasy [due to little resistance from stakeholders]…such as valuation basis of inventory, segment information, disclosure of related party, unification of
accounting standards of foreign subsidiaries, investment property’ (2005, March, Official Announcement)‘It would be certainly true that IFRS adoption would be beneficial for certain related parties, including some investors, some of those people producing

Optional adoption

consolidated financial statements and some auditors…in this sense, ASBJ agrees with the optional adoption of [‘pure'] IFRS as soon as possible.’ (2009,
April, Official Announcement)‘It would be necessary to maintain optional adoption of ‘pure' IFRS since certain firms already adopted…but it would be equally important to ‘carve out

New standards

and modify' certain elements of IFRS, which would be helpful in adopting IFRS and showing Japanese attitude toward IFRS…there exist certain
elements that should be carved out and modified, which include amortization of goodwill…adjustment reclassification and current net income’ (2015,
June, Official Announcement)23