Japan is an unique oriental country in many aspects, especially in politics and economy, both western practices and traditional nationalism are coexisted in this country. The period 1890-1940 was just followed the Meiji restoration, and was typical in the history of Japan, at that time, Japan was on the way from a feudal country to a capitalistic country, called modernization. Many western practices were being more and more adopted, however, at the same time, traditional rules still had strong influences in Japan.
Under this background, this report will discuss the Japanese cultural factors during 1890-1940 that influenced the disclosure of financial information. In 1868, Japanese government began the social and economical reform, called “Meiji Restoration”,which represented that Japanese government decided to guide this oriental country to the way of modernization and westernization, and many conventions in political and economical fields would be modified to comply with new practices. Disclosure of financial information was also influenced by this trend, and being perfected.
Before Meiji period, Japan’s accounting was imported from China and adapted to the situation in Japan. It was single entry for accounting, but in Meiji period (1868-1912), there appeared a trend of accelerated modernization of accounting. Moreover, American accounting standards and double entry accounting were translated into Japanese, and most of Japanese enterprises began to use this new method. Though single entry accounting was still being used at that time, undoubtedly, double entry accounting could provide more information disclosure to the public compared with the old method.
Political factors During the period 1890-1940 of Japan, politics from instability to stability and the modern Japanese political system was built after the Constitution of 1889, which means Japan had became a capitalistic country from the perspective of law. At the same time, political parties grew rapidly and controlled the main power of the government, their leaders and members were mainly from business, politics and military. They helped this country carry out the reform, at the same time, many traditions were also kept.
Newly developed enterprises had a demand for profits and development, this voice was being heard through their representatives in the government, therefore, reforms of accounting was also pushed by this force, to some extent. A series of modern institutions were established, Ministry of Finance was the main policy office of the government, it was the agency responsible for financial matters, by 1898 the basis of its present duties and organization had been established, including budgeting taxes banking, insurance stocks and bonds, and international monetary affairs.
These institutions paved the way for Japan to become a modern country in most aspects of economy. Government intervention Unlike other capitalistic countries, government intervention is obvious and plays an important role in the development of economy though Japan is becoming a democratic country after Meiji restoration. Therefore, the economy of early 20th century Japan has thus rested continuously on the balance between confidence on market power and resort to government intervention, market relationships did not operate in quite the same way in Japan as in the western economies.
There were at least two reasons for the speed of Japan’s modernization: the employment of over 3,000 foreign experts, in a variety of specialist fields such as teaching English, science, engineering, the army and navy etc. ; and the dispatch of many Japanese students overseas to Europe and America, based on the fifth and last article of the Charter Oath of 1868: ‘Knowledge shall be sought throughout the world so as to strengthen the foundations of Imperial rule. ‘ This process of modernization was closely monitored and heavily subsidized by the Meiji government, enhancing the power of the great zaibatsu firms such as Mitsui and Mitsubishi.
Hand in hand, the zaibatsu and government guided the nation, borrowing technology from the West. Japan gradually took control of much of Asia’s market for manufactured goods, beginning with textiles. The economy structure became very mercantilist, importing raw materials and exporting finished products — a reflection of Japan’s relative poverty in raw materials.
Japan emerged from the Tokugawa-Meiji transition as the first Asian industrialized nation. Domestic commercial activities and limited foreign trade had met the demands for material culture in the Tokugawa period, but the modernized Meiji era had radically different requirements.
From the beginning, the Meiji rulers embraced the concept of a market economy and adopted British and North American forms of free enterprise capitalism. The private sector — in a nation blessed with an abundance of aggressive entrepreneurs — welcomed such change. Economic reforms included a unified modern currency based on the yen, banking, commercial and tax laws, stock exchanges, and a communications network. Establishment of a modern institutional framework conducive to an advanced capitalist economy took time but was completed by the 1890s.
By this time, the government had largely relinquished direct control of the modernization process, primarily for budgetary reasons. Many of the former daimyo, whose pensions had been paid in a lump sum, benefited greatly through investments they made in emerging industries. Those who had been informally involved in foreign trade before the Meiji Restoration also flourished. Old bakufu-serving firms that clung to their traditional ways failed in the new business environment. The government was initially involved in economic modernization, providing a number of “model factories” to facilitate the transition to the modern period.
After the first twenty years of the Meiji period, the industrial economy expanded rapidly until about 1920 with inputs of advanced Western technology and large private investments. Stimulated by wars and through cautious economic planning, Japan emerged from World War I as a major industrial nation.
Market-oriented economy is the aim of Meiji restoration, but the power of government intervention cannot be neglected, government supports the establishment of modern institutions, and sends students to study economy in western countries, and at this time, western accounting methods begin to be adopted by Japan.
Before 19th century, there was a limited demand for accounting disclosure in respect of the foreign investment, it happened after losses to foreign investors. In 1909, government recognized accountant as a profession, and professional accountant appeared in 1890. In 1927, there were around 300 accountants and this recognition became legislation. In 1934, Ministry of Commerce codify the rules for financial statement and also issue manuals for munitions factories’ statements after a short beginning of World War II. Foreign trade
In the Meiji period (1868-1912), both imports and exports rose significantly in Japan. From 1890 to 1940, Japan gradually became a main exporting country and established a strong relationship with many western countries, and as more communication appeared between Japan and other countries, how to record these transactions in a way that both sides can understand became a practical question, western accounting method appeared to be the best option, for Japan’s trading partners were mainly using this accounting, and more financial information disclosure was needed and necessary as a result.
In the aspect of foreign investment, after the Meiji restoration of 1868, the government and emerging companies brought new technologies and management from overseas, which made Japanese companies to be capable of participation of foreign market and capital. Furthermore, from the Sino-Japanese war of 1894-1895, until the beginning of World War I, Japanese companies cooperated with American and European companies especially in the aspect of manufacturing and chemical industry, this phenomenon and trend desired a modernization of accounting and information disclosure to the companies and public.
The commercial code is a legal framework that defines the nature and operation of commercial entities and the feature of commercial relationship in Japan, Which requires the corporate directors to prepare financial statements for statutory auditor. In the process of Japan’s westernization, Germany plays an important role, especially German Commercial Law. One of the methods of accounting called German Mode of Accounting, A German scholar named Hermann Roesler was commissioned by Japanese government to write a draft based on the German code, the first declaration of a commercial code published in 1899 in Japan.
But the rule for the financial statement is not clear and detailed. For example, the valuation of asset is not clear enough, and as a result the firm can have more controls to profit and limit their disclosure. Since then the commercial row has been revised more than 20 times. The purpose of the commercial code is to protect creditor and ensure company calculates the availability of income for dividend to shareholders in a conservative manner.
For instance, company has to disclose the asset recorded at acquisition date without provision, such as increase in asset value, which increases shareholders’ profit as well. The Ministry is responsible for the application of commercial code. These codes require every joint-stock company to prepare a non-consolidated annual financial statement in accordance with commercial code rules. Moreover, commercial code requires the financial statement must be submitted in the general meeting for approval.
These statements focused on the disclosure of profit determination, and the availability of dividend payment. Commercial Code contributes a great deal to the disclosure of financial information, after the legislation and implement action of the law, financial information of companies is released to the public, proper operation and management for companies are gradually established. Development of industry and capital market From 1890 to 1940, the industries increased dramatically. Some outdated industries disappeared, and meanwhile many new industries were established.
A complete industry system was gradually established in this period. Modern enterprises played an essential role and the company demanded for a practical accounting method to comply with international practices. On the other hand, capital market was perfected in this process. Listed companies need to be disclosed their financial information to the stakeholders, and the extent of disclosure is much larger than before. Development of industry and capital market improves the disclosure of financial information efficiency on some extent.
Financial crisis After Meiji Restoration, Japanese financial system was divided into two parts: financial intermediary and capital market, financial intermediary refers to various types of banking institutions, capital market mainly means issuing shares and bond. The global economy crisis happened in 1927 also caused great destruction to Japan, 37 banks went into bankruptcy, only several banks were saved from the government by relief of government plan.
The whole society began to analyze the causes of this crisis, inadequate isclosure of financial information is a main one, so after that, government institutions fatherly enforced the disclosure of financial information.  Conclusion Historical studies of accounting change in different countries have been identified as an important addition to the literature on culture and politics on accounting systems. A suitable framework is needed in order to investigate the influence of culture and politics on accounting in single countries and on the process of accounting change.
The paper proposes a framework based on the frameworks of Gray (1988), which is expected to facilitate the analysis of culture and politics on accounting change and development in a single country. Culture, social context and political processes are expected to influence all phases of the change.
- Bas van Leeuwen, (2004), Wage differentials and economic growth in India, Indonesia, and Japan, 1800-2000,
- Miji reform (2007), ; http://zhidao. baidu. com/question/19615184. html;
- Belkaoui, A. R. “Cultural Determinism and Professional Self-regulation in Accounting: A Comparative Ranking”, Vol 3, 1989, pp 93-101
- Hofstede,G, “The Confucius Connection: From Cultural Roots to Economic Growth”, USA, Sage publication, 1984
- Mark Poe,Kay Shimizu and Jeannie Simpson, “Revising the Japanese Commercial Code”, USA ,Stanford Journal of East Asian Affairs,2002 Volume 2
- Lederach, John Paul. 1995. Preparing for Peace. Conflict Transformation Across Cultures. Syracuse, NY: Syracuse University Press, pp. 94.