Controversies over the Development of Japanese Modified International Standards (JMIS)

Using a content analysis of relevant Business Accounting Council (BAC) meetings and comment letters to the exposure draft, this study provides rigorous and holistic insights into the debates concerning the adoption of International Financial Reporting Standards (IFRS) and explores why the development of Japan’s modified IFRS (J-IFRS) and Japan’s modified international standards (JMIS) is controversial among Japanese constituents. The results indicate that most BAC members prefer a cautious convergence approach (i.e., voluntary adoption of IFRS) to a direct adoption approach (i.e., mandatory adoption of IFRS). The results also report that, although most BAC members agreed with the application of endorsement procedure, one-third of them disagreed with the development of J-IFRS. Moreover, half of the respondents to the exposure draft disagreed with the development of JMIS. Most Japanese constituents tend to acknowledge that deletions or modifications of IFRS should be made when IFRS include unacceptable requirements regarding the fundamental concepts of Japanese generally accepted accounting principles (J-GAAP). Some constituents argue that Japanese companies have low demand for JMIS and that the development of JMIS may hinder comparability of financial reporting because of the coexistence of different accounting standards. The findings are especially useful for the national authoritative organizations, such as the Financial Services Agency (FSA), BAC, and Accounting Standards Board of Japan (ASBJ), as well as the International Accounting Standards Board (IASB).