Comparability of Accounting Information in Nonprofit Accounting Standards in Japan

• In Event: Similarities and differences in the measurement of assets between for-profit and not-for-profit organizations under the concept of comparability

Abstract

This panel-paper explores, applying the normative approach, the basic idea “comparability of accounting information” of the discussion on unification of nonprofit accounting in Japan, and examines whether the unified nonprofit accounting standard is really necessary for decision makings of stakeholders such as donors and other resource providers in Japan’s unique setting.

In Japan, unlike many other countries, there are various types of nonprofit and public benefit corporations, such as general corporations, public interest corporations, educational corporations, social welfare corporations, religious corporations, and specific nonprofit activity corporations, and each corporation has its own and unique accounting standards, which were usually established by overseeing government agencies (Deguchi 2016). This very complicated situation of Japan is called an example of “Galapagos Syndrome” (Deguchi 2015). Under the current system of accounting standards, each type of nonprofit corporations is asked to make a set of financial statements, being different from other type of nonprofit corporations, and reports and discloses it.

Now, discussions are underway especially in the practice community, led by certified public accountants, to unify nonprofit accounting standards (Furuichi 2021; Ishizu 2023; JICPA 2019; JICPA 2022). Criticisms are often heard about Japanese nonprofit accounting or accounting standards, which is said to be Galapagosized, in that there is no "comparability" in financial statements among different types of nonprofit corporations, and thus it is very difficult for resource providers to understand the information from each different financial statement in making economic decisions (JICPA 2013).

Based on the thorough analysis of various type of nonprofit accounting literatures, this paper concludes that, in making decisions about which organization to donate or subsidize, resource providers do not often seem to consider their options among different types of nonprofit corporations. Rather, for example, it is more common to make a choice among A corporation, B corporation, and C corporation within the same corporate category like public interest corporations.

If this is the case, it would seem that the argument that the accounting systems and standards for Japanese nonprofit accounting exist for each type of corporation and that these separate accounting standards need to be unified from the perspective of "comparability" does not seem to hold water.

Author

• Eliya Onoe, Nihon University