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Japan’s ‘Triangular Legal System’, that is not seen anywhere else in the world, sets down financial accounting in Japan and the rules of reporting. Regulatory bodies like Commercial Code, Securities and Exchange Law, and Corporate Income Tax Law; each of these have its own needs to address their unusual aims, however, the 3 laws put forth authority on one another in different ways.

Below sections look into the history, objectives, and main necessities of each of these laws building accounting in Japan and its ‘Triangular Legal System’.

Commercial Code

Passed in 1890, initiated in Japan, this financial reporting system was developed after commercial code of Germany was familiarized towards tax collection and creditors. Ministry of Justice monitors and puts in force the commercial code. All joint-stock companies in Japan must arrange non-consolidated yearly monetary statements as per the CC rules and are bound to present these statements for an approval at the general annual stockholders meeting. Main goal of CC is to defend creditors by making sure that companies estimate profits for dividends to stock holders in a conformist way.

Securities and Exchange Law

Although, there are more than 1 million joint-stock companies in Japan, the Securities and Exchange Law (SEL) is applied only around to 2,600 organizations with stocks openly traded. The SEL needs revelation of non-consolidated and consolidated monetary statements not just when new securities are issued, but also during submissions of semi-annual and annual reporting.

Corporate Income Tax Law

Corporate income tax laws in Japan and its regulations make an important consequence on the financial reporting and profits dimension by restricting the amounts of definite tax deduction types. Examples of these certain deduction types may include; reduction of preset assets, allowances for non-performing loans and bad debts, and expenditures for worker severance indemnities and pensions. The primary purpose of Corporate Income Tax Law is to get hold of revenues generated by tax for the government. Companies mostly are not permitted to trace deductions for tax, although an increase in a liability or a decline in the worth of an asset has taken place from a financial point of view.