The impact of legal origin and harmonisation on IFRS financial reporting of Japanese subsidiaries in Australia

  • Sachiko Sugiyama

    Student thesis: Doctoral Thesis


    This study examines the impacts of (1) the adoption in Australia of globally accepted accounting standards, International Financial Reporting Standards (IFRS),and (2) the legal tradition on financial reporting for Japanese subsidiaries in the Australian intra-county setting. Currently by March 2017,IFRS had been adopted across 126 jurisdictions. In Australia, since 2005 all reporting entities, including foreign-owned subsidiaries, have been required to implement Australian IFRS, whereas Japan have not yet adopted IFRS. Australia, one of the common-law countries, is viewed as having an investor-orientated, efficient accounting environment. In contrast, Japan is categorised as a code-law country with a bank-centred society. Financial reporting behaviours in code-law countries, which resolve information asymmetry through insider communication networks, are regarded to be dissimilar to those in common-law countries, which publicly disclose information. The adoption of the Anglo-American model of IFRS for the Japanese subsidiaries operated businesses in Australia is expected to lead to a decrease in diversity and earnings management in financial reporting, resulting in an increase in reporting quality for the reporting entities. This study investigated financial reporting diversity, earnings management and timely loss recognition during 2000–2010 and the reconciliations at the IFRS transitional period for the Japanese subsidiaries and their peer companies in the Australian context. The results show that financial reporting diversity increased after IFRS adoption, but frequencies of earnings management decreased, indicating that the sample companies, specifically for the Japanese subsidiaries, generally improved their financial reporting quality in the post-adoption period. This study found that the foreign-owned subsidiaries, which were strictly monitored by multiple parties, such as regulators, competitors, professionals and customers in the local market, tended to have the shareholder-oriented model under more market pressure, compared with the local firms which were more likely to have the insider access model. Although the financial reporting for the Japanese subsidiaries were not in line with their Australian peer companies, their financial statements in accordance with IFRS started to disclose a wide range of items and became more useful for the users’ decision-making. During the observed period, the IFRS financial statements were still heterogeneous across companies, so IFRS were not always effectively standardised. Nevertheless, there is enough room for IFRS financial statements to show some form of homogenisation in the business community in the future under the Australian effective regulatory systems.
    Date of Award2017
    Original languageEnglish
    SupervisorJesmin Islam (Supervisor) & Abu Mollik (Supervisor)

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