The new accounting standards announced by the BADC between 1997 and 1999 will greatly improve the usefulness of company financial reports by providing investors, shareholders, and creditors more complete and accurate information about a company's financial situation and results. Someya (1996, 12-8) identified two accounting revolutions in Japan: the introduction of double-entry bookkeeping in the 1870s and the introduction of investor-oriented financial reporting by the Allied Command after World War II. The far-reaching accounting revisions announced between 1997 and 1999 rank at the same level as Japan's first two accounting revolutions. The changes in fair-value accounting, consolidations, pensions, R&D costs, and other areas of accounting represent fundamental shifts in the financial reporting framework. As a result of this Accounting Big Bang, numerous Japanese companies have implemented or are considering restructuring of operations, sales of cross-shareholdings, modifications to reported financial information, and revisions to pension benefits.

This dissertation analyzed the main reasons for the new and revised accounting standards issued by the BADC during the last two years. Throughout the 1990s, the bad loan crisis and a series of financial scandals and bankruptcies, caused in great part by weak financial reporting and auditing practices, pressed the Japanese government to make fundamental reforms to the financial system, including corporate financial reporting regulation. The business and regulatory environment, such as the dominance of the MOF and the keiretsu and main bank business structure in existence for several decades, contributed considerably to the weaknesses in the accounting rules and the auditing system. Recent financial market innovations such as derivatives and the internationalization of financing and investing also played a role in impelling the BADC to make accounting improvements. In the end, the Japanese government started to make changes at about the last possible moment, only after great pressure from several sides. The international financial community considered Japanese financial reporting to be backward, with the Japanese government showing almost no signs of a desire to proactively address accounting issues until the BADC announced several significant changes in June 1997.

This dissertation also examined the effects of the recent accounting revisions. Although the new accounting rules resulted in many notable changes as discussed in the first paragraph of this section, the financial reporting regulatory structure and the business environment remain nearly unchanged. The fundamental financial reporting foundations and institutions established during the Allied Occupation, such as the triangular legal system and the MOF's predominant position, have changed little as a result of the Big Bang financial reforms. The current process of having the MOF dictate the issues agenda to the BADC does not allow for an independent, comprehensive, and proactive examination of accounting issues that will remain after implementation of the changes announced since 1997. Although the FSA since 1998 has taken over the MOF's previous responsibility for supervision and examination of financial institutions, the majority of the MOF's power, including regulation of corporate financial reporting requirements, remains firmly intact.

The BADC's announced accounting changes provide strong support to Prime Minister Hashimoto's call for 'free, fair, and global' financial markets, but the Japanese government has given other signs to indicate that its underlying attitude toward financial reporting has not changed. The temporary changes in accounting requirements for fiscal years 1997 and 1998 to allow companies to revalue land upward but not downward and to permit banks to use the cost method to value marketable securities may reflect the shallowness of the government's commitment to genuine changes to achieve transparent financial reporting. The slow-paced implementation schedule for the accounting changes, such as the delay of pension accounting and fair-value accounting of cross-shareholdings until the fiscal year ending March 31, 2002, does not come close to the speed associated with a 'Big Bang' such as the one that occurred in the UK in 1986.

Despite the rhetoric from the Japanese government and BADC on the virtues of transparent, credible financial reporting, the attitudes of company leaders seem not to have changed much. The Keidanren's support for implementation delays and their opposition to some accounting revisions reflect the resistance of corporate management to major changes in financial reporting practices. The following statement from a managing director of a large industrial company illustrates the typical attitude of Japanese corporations: 'The existence of hidden profits has been criticized, but it can be of practical use for such things as maintaining employment. Managing without hidden profits will be a problem' (Kaneko 1999, 17). A survey of Japanese company leaders as to their opinions regarding the Accounting Big Bang would make an interesting study and would probably reveal widespread displeasure with at least some of the accounting revisions.

Few Japanese companies have realized the value of investor relations, where investors and analysts receive in a timely manner comprehensive and accurate company information beyond the minimum requirements set forth by laws and regulations. If company management actively and freely discloses relevant news, both good and bad, then investors and creditors begin to trust the company, which may lead to higher stock prices and a lower risk premium on borrowings. Good investor relations also may lessen the negative impact of bad news by eliminating or reducing unfounded speculation like what occurred in the international financial markets in the 1990s regarding the extent of Japan's bad loan crisis.

Even though the Japanese government has strengthened financial disclosure requirements, concerns remain as to whether or not disclosed information will begin to reflect the true financial situation of Japanese companies. Japanese financial reporting, despite the changes announced during the past two years, still requires improvements to fully realize the lofty goals of Prime Minister Hashimoto's financial system Big Bang and to completely satisfy the demands of investors and other stakeholders.