Accounting and auditing responsibilities:
Auditors are responsible for accounting. As for large companies
with capitals of YEN 500 million or more or total debts of YEN
20 billion or more, audit corporations or CPAs outside a company
must audit accounting part of financial statements and other relevant
documents.
Compared with the international standard of accounting, Japanese
accounting practices have the following features:
1 Tax consideration affects accounting.
2 Generally the mark to market is not compulsory. As for listed
securities, valuation by lower-of-cost-or-market method is chosen.
3 Japanese accounting has laid stress on non-consolidated
financial statements but now there is tendency to lay stress
on consolidated financial statements.
Some recent bankruptcy cases have revealed that management had
made false accounting to conceal bad financial conditions of the
company.
Generally speaking disclosure system in Japan is good but pursuit
of liabilities in window dressing accounting will become more
rigid in order to secure high standard transparency.
Director and management responsibilities:
The board of directors decides on execution of the company business.
Directors are responsible as a member of the board for the management
of their company. If a director has done damages against the company,
he will be required to compensate for such damages. A representative
action by a shareholder is available to pursue such director's
liabilities. If there is a willful misconduct or gross negligence
in the performance of directors' duty, such directors are jointly
and severally responsible for a third party's damages arising
therefrom.
Regulatory authorities:
The Legal Affairs Bureau is a government division in charge
of the company registration. The Financial Supervisory Agency
has a function which the former Ministry of Finance had with respect
to supervision of banks and other financial institutions. Bank
of Japan also functions as bank examiner to banks and certain
securities corporations of which current accounts are with Bank
of Japan since Bank of Japan monitors financial conditions of
banks as borrowers in the capacity of a possible lender to such
banks. Listed companies are required to submit their securities
report and semi-annual report to the Finance Bureaus and the Stock
Exchanges to disclose financial conditions and other important
information as to listed companies. The extent of supervision
by regulatory authorities depend on the nature of the business
which the company carries on. If a license is necessary for the
business, the regulatory supervision is generally stronger. For
example, the Ministry of Transportation has strong influence on
transportation companies and the Ministry of Health and Welfare's
influence on drag manufacturing companies is also strong.
