International Financial Accounting


The global market has called for the adoption of similar accounting standards by all countries worldwide to enable ease in transactions. This is mostly for those countries whose products are meant for the global market; however, the other countries are also obliged to adopt the same since they import products from the market as well (Bolkestein, 2002, p.3).

A study case is a recent challenge that has been faced by China and Japan in their collaboration with General Motors. This is because their reporting standards differ from those of the United States GAAP and IFRS. This report is therefore an analysis of the findings of the convergence of the two countries’ (Japan and China) financial reporting standards with those of the United States as well as the possible causes of the difference and similarities in the financial reporting standards.

Convergence of Japan’s financial reporting standards with U.S or IAS GAAP since 1999

Despite being a very industrious nation, Japan has been faced with many financial scandals as well as a series of bankruptcies. This has affected its performance in the global market leading to mistrust in its financial reporting standards. In most instances, it declined to reveal the bad loans that were held by financial institutions. Nevertheless, in 1999, the Japanese government declared reforms in its financial reporting and accounting standards.

At this point, Japan was ready to converge its national accounting practices to international standards. Before then, it used the Japanese Generally Accepted Accounting Principles (GAAP) and wanted to match it to the International Financial Reporting Standards (IFRSs). The process began with the signing of the ‘Tokyo Agreement’ which initiated revisions to be made on the JGAAP (Bolkestein, 2002, p.6). After the signing of the agreement, reforms were made for the JGAAP to adopt the United States’ American standards (IFRS).

This involved changes in the accounting policies and clauses such as the hidden losses and profits, pension accounting, corporate taxes, fair value accounting just to mention but a few. Japan initiated this by establishing an IFRS project group designated to provide training on IFRS to the accountants and accounting students.

A comparison between Japan’s historical paths of convergence with that of China

Just like Japan, China was also facing the same problems about financial reporting and standards. In China, the ministry of finance initiated the convergence through a draft named “Roadmap for Continuing and Full Convergence of China’s Standards with IFRS. The trend has been positive since up to the year 2001, sixteen standards had been adopted while others were still under development.

In the process of convergence of the Chinese GAAP to the U.S GAAP or the IFRS, Deloitte Touche Tohmatsu participated by advising the ministry of Finance of China. Unlike Japan, China adopted policies and standards such as the accounting system for business enterprise, Fair value accounting among others.

The societal values and economic goals that have caused a difference in financial reporting standards

As mentioned above, accounting policies and standards are greatly influenced by several environmental factors. These factors play a part in making the accounting procedures appear different in different national environments. These differences can be further explained according to Gray’s model which postulates that the accounting policies are created as a result of cultural values.

The four basic accounting values according to Gray are professionalism v statutory, secrecy v transparency, uniformity v flexibility, and conservatism v optimism. Professionalism brings about the difference in accounting standards as each accountant wants to exercise their professional judgment when carrying out the accounting tasks (Doupnik and Salter, 1995, p.3).

The second concept of Gray’s model is that of the flexibility of the accounting policies according to too an individual’s perception thus leading to differences in the accounting policies and standards. Another of Gray’s concepts about the accounting policies is optimism whereby the accountants are left to do as they wish regarding the accounting policies and standards. This, therefore, leads to the differences in the accounting policies from one location to the other (Sawani, 2009, p.7).

Last but not least is Gray’s concept of secrecy which explains that accounting information should not be disclosed. This, therefore, has an impact of making the reporting of accounting to be different in different institutions as well as countries like in the case of China and Japan.

In addition to Gray’s model are Hofstede’s societal value dimensions which also contribute to the differences between China and Japan. Among them is individualism whereby accountants are left to do the accounting work on their own thus the difference. Other than this are power distance and uncertainty avoidance all of which bring about a difference in the accounting standards and policies.

As for the case of China, Hofstede revealed another value of short-term v Long-term orientation which brings about the difference with Japan. Further studies by another scholar by the name Perera indicated that accounting standards and policies could also be influenced by the cultural values of that country. This also explains why the difference in accounting policies of China and Japan.

At the same time, Japan has a lower uncertainty avoidance and feminism whereby they are very slow at evading risks hence more financial crisis, unlike China. The issue of feminism is that they have a different view of the female gender. All the aforesaid have a great contribution to its different accounting standards with China.

The societal values and economic goals that have caused a similarity in financial reporting standards

The two countries Japan and China are classified as developing nations whose economy is fast rising to reach the top list in the world. First of all, is the fact that they are in the manufacturing industry with most of their products being in high demand in the global market. This has made them adopt similar International standards to ease their operations and reporting in the global market.

The fact that the two countries are in the Asian continent makes increasing the possibilities of them having similar accounting policies and reporting standards because of the similar education systems, culture, economic activities just to mention but a few.

Other factors contributing to the similarities in accounting policies and standards of the two nations are Gray’s model of accounting. For one, Statutory control which is a requirement that all nations should comply with the prescribed accounting policies and legal actions taken, makes nations have similar policies of accounting. For example, China’s and Japan’s adoption of the IFRS makes them similar. Secondly, uniformity is another of Gray’s concepts which state that the accounting standards ought to be the same despite the location.

This has therefore facilitated similar accounting standards for China and Japan. The concept of conservatism according to Gray contributes to the similarity in the accounting policies of China and Japan. “This is because conservatisms would not undertake any specific context about accounting thus same policies” (Doupnik and Salter, 1995, p.3).

Openness is another of Gray’s concepts that facilitate similar accounting policies and standards since there is nothing to hide and everything is laid down in the open for all to view. Lastly, Hofstede argues that Islamic values have an impact on the accounting systems thus since China and Japan are Islamic nations they are deemed to have similar accounting policies given their religion.


From the aforementioned factors influencing the adoption of similar international accounting policies and reporting standards, it is evident that it is of great essentiality that all countries have similar accounting standards and policies (Sawani, 2009, p.2). This becomes necessary because of the global market where countries import and export products from and to other nations thus earning foreign exchange.

The similarities and differences in the adoption of the accounting policies can be attributed to Gray’s model of personality and signal detection whereby different countries do what they deem best for them. This is to men that some countries will be reluctant to adopt the international accounting standards and policies because of their reasons which could include conservative people who are resistant to change.

On the other hand, other nations will be quick to adopt the international accounting standards and policies given the benefits package it comes with. As for the case of Japan and China, adoption of the international accounting standards is very beneficial for them because they are active participants of the global market.

Reference List

Bolkestein, F. (2002). GAAP Convergence 2002. Web.

Doupnik, T and Salter, S (1995) “External environment, culture, and accounting practice; a preliminary test of a general model of international accounting development”, International Journal of Accounting, 30, 3.

Sawani, A. (2009). The Changing Accounting Environment: International Accounting Standards and US implementation. Web.

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