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In Japan, a major reform of the legal framework of Public Interest Corporations (PICs) took place in 2006. Responding to the reform, the accounting standard was issued by the Public Interest Corporation Commission of the Cabinet Office in 2008, based on the prior accounting standard of 2004. This 2004 standard did change the accounting framework of PICs from the stewardship accounting to the decision usefulness accounting drastically, and established the objectives of general purpose external financial reporting. It was introduced to improve the accountability and transparency as a whole. Since the current accounting standard is based on the 2004 standard, we need to evaluate it whether the standard really improve the accountability and transparency of PICs activities.
The accounting and financial reporting regime in Japan have been influenced by the ones of the United States in general. The US nonprofit accounting shifted the accounting framework from the stewardship responsibility to the usefulness for making decisions, and set up the objective of the general purpose financial reporting and the standards until 1990s. In the evolution of nonprofit accounting, it should be questioned how the financial reporting has improved the accountability and transparency of nonprofits. This is also true for charities in England (Cordery & Baskerville, 2007; Cordery, 2013).
Applying the normative approach, this paper analyzes the 1985 and 2004 PICs’ accounting standards in Japan to evaluate how the change of accounting standard brought the improvement of accountability and transparency as intended. This analysis is based on the decision usefulness theory of financial information, which attempts to describe accounting as a process of providing the relevant information to the relevant decision makers such as shareholders and investors (AAA, 1966). All of the accounting standard setters such as FASB (US) and IASB have been adopting this theory in setting the accounting standards. Even in nonprofit accounting, this theory has been widely adopted (cf. FASB, 1980).
This paper argues that the purpose of financial information provided on the financial report was changed from the management purpose to general purpose (Saito, 2011). For example, Documents such a budget and an income and expenditure account statement were excluded from the 2004 standard. To check directly whether a subsidy from the government for a certain use was used for the specified purpose, cash basis accounting is very significant. These documents are crucial for discharging the accountability.
One of the findings of this paper is that the concept or content of accountability has been changed: from the specific to the general. The 2004 standard is for general purpose external reporting, and various stakeholders are considered, thus the accountability concept becomes vague, although the 1985 standard was for management purpose, and the accountability was discharged by donors and regulatory agencies. This analysis may apply to other countries’ accounting standard since the general purpose reporting is one of outcomes of international harmonization process of accounting.