A comparative history of accounting traditions in China and Japan

Accounting for centralised political sovereignty in China

Surviving historical records of pre-modern accounting in China ² mainly consist of classic literature and ancient texts engraved in turtle shells and bamboo slips discovered from archaeological excavations. These records reveal the early integration of accounting into the political institution of the Chinese imperial system, dating back to the beginning of feudal dynasties in 221 BC (Guo, 1982). Since then, accounting has served as an essential instrument for the exercise of imperial sovereignty, allowing the emperor to enact his divine right to governance. Such politically important accounting practices emerged prior to the rule of Emperor Qin (221 BC) and were subsequently refined across later imperial periods. Records show the accounts provided key information for macro-level governance to enable the effective control of major resources, such as taxes and land levies, as well as accounts that provided information for the performance appraisal of subordinate officials (Aiken and Lu, 1993; Guo, 1982; Song, 2022). There is evidence that accounting was used for royal control in other ancient societies, such as English accounting in the medieval period, where accounting facilitated the relationship between the king and his subjects, defining, more particularly, the king's power to tax and the subjects’ obligation to pay (Chatfield, 1968). As Chatfield (1974: 4) has argued in regard to the English case, ‘no government could afford not to keep an accurate record of receipts and disbursements. Tax collections in particular were always closely controlled’. However, the distinctiveness of the Chinese case lies in the enduring magnitude of centralised power as the society's organising feature and the significance of accounting within this political system. The tradition has persisted over millennia, and, this article will argue, remains prevalent today.

Archaeological excavations have discovered the appearance of the word accounting ‘kuaiji’ ³ from inscriptions engraved in bronze instruments used in the Shang Dynasty (1600–1046 BC) to record expenditures in sacrificial ceremonies for ancestors ⁴ (Fu, 1971; Guo, 1982; Song, 2022). The word was also used in the book ‘Rites of Zhou’ ⁵ to define a gathering in which a famous ancient emperor named Da Yu had summoned regional leaders to assess their merits for determining rewards and punishment ⁶ (Guo, 1982). As argued by Fu (1971), ⁷ the ‘Rites of Zhou’ described government posts, official duties and the administrative structure of the Zhou government. ‘Kuaiji’ in these ancient records had a commonly understood meaning that included a broad range of record-keeping activities, from daily sporadic transactions to year-end reporting of expenditures and outputs for the emperor's appraisal. Researchers have also revealed that since the Zhou dynasties (1050–221 BC), standard names and characters have been given to expenditure and income items. More particularly, the Chinese characters of ‘shou’ (receipt) and ‘fu’ (payment) or ‘chu’ (out) and ‘ru’ (in) ⁸ were used to record resource-exchanging activities. These terms continued to be used as bookkeeping symbols throughout the feudal dynasties until modern times ⁹ (Gao and Handley-Schachler, 2003; Guo, 1989).

This integration of accounting and national governance became evident after the Qin regime (221–206 BC) invented the imperial system that brought regional governance under a unified administrative framework, including standardised language (Chinese script); currency; units of measurement such as weights and length; a national network of roads and canals across Chinese states; and a single ideology – legalism, resulting in the ban of all other schools of thought that prevailed in previous periods (Lewis, 2015). The Qin regime survived for 15 years only; however, its administrative measures were inherited by later regimes and refined over the next two millennia.

The record-keeping measures appearing in the ‘Rites of Zhou’ were adopted into the Qin Statute Book as a form of law that aimed to secure imperial control (Guo, 1982). Accounts were set up to report fiscal revenues on a regular basis (every 10 days, monthly and annually) including items such as farmland rental; household tax; corvee labour; and levies on production and commercial activities. Local counties and prefectures were required to report these accounts to the central royal court together with annual grain outputs, and this formed the basis for remittance to the emperor (Guo, 1982). This accounting system was termed the ‘Shangji System’ ¹⁰ (Grand Treasury System) and was organised around the functions of internal control, treasury and auditing (Chatfield, 1974: 8).

Managerial control of the ‘Shangji System’ was facilitated through the financial administration of multiple sources of revenue funds for specific items, such as public works; royal court expenditures; diplomatic missions; official payrolls; and the maintenance of royal ancestral temples (Chatfield, 1974). The system also included a careful division of responsibilities among levy collection and the management and record-keeping of significant resources, with measures requiring that officials cross-check with each other by matching their written records with actual receipts and disbursements of monies and commodities ¹¹ (Aiken and Lu, 1993; Guo, 1989). The objective of accounting in this system was clearly bound with the interests of the emperor, from specifying responsibilities of fiduciaries of valuable resources (such as wine, furs and leathers), to kingdom-wide treasury management. Providing information relating to legal compliance and statistics on economic activities for performance evaluation of subordinate officials within the bureaucratic hierarchy was indeed an essential function of accounting, even by contemporary standards. This Chinese imperial accounting featured a sophisticated financial management system, as Chatfield (1974: 8) commented: ‘in the procedural areas of internal control, budgeting, and audit, the Chaos [Zhous] ¹² probably had no peers in the ancient world’.

Traditional bookkeeping methods used in the Chinese imperial system mainly involved a single-entry recording system that focused on receipts and disbursements of resources (Chen, 1998). ¹³ They were recorded on vertical lines with traditional Chinese characters, rather than Hindu-Arabic numerals, and each transaction was recorded in one entry in sequential order within journals – a style called ‘Liushui Zhang’ (running water recording) (Lin, 1992). A ‘sanzhufa’ (three-column balancing principle) was introduced exceptionally early during the Western Zhou Dynasty (1122–771 BC) to enable the imperial court to keep track of royal assets: ‘ru’ (revenue] − ‘chu’ (disbursements) = ‘yu’ (surplus) (Aiken and Lu, 1993). Under this system, all transactions were recorded according to either a ‘ru’ or ‘chu’ direction, which were then summarised and transferred to reports of the three major categories following the three-column balancing principle. This kind of trial balance report was to be submitted to higher authorities on a regular basis, tracking the flows of state properties for the emperor (Lin, 1992). During the Tang Dynasty (618–907 AD), a ‘Sizhufa’ (four-column balancing principle) was widely used, which took into account the balance brought forward from the previous period: ‘receipts + payments = ending balance − beginning balance’ ¹⁴ (Guo, 1989: 9).

In contrast to the heavy focus on the accounting for Royal Courts in the extant literature, the general impression of accounting practices in the private sector at this time is that they mainly followed techniques found in ‘guanting kuaiji’ (accounting in government) (Guo, 1982: 144). They were also understood to be ‘very crude and simple’ (Lin, 1992: 106), with little development over millennia. Some notable innovations, however, did emerge during the Ming (1368–1644) and Qing dynasties (1644–1912), when commercial trading activities expanded in private sectors. A widely adopted method was to use three levels of account books to record transactions with multiple entries. In this system, daily transactions were first entered in ‘Caoliu’ (memorandum) when they occurred and then recorded in ‘Riqing Bu’ (general journal) at the end of each day. These entries were then summarised and transferred to a ‘Tenqing Bu’ (similar to a summary general ledger) every 10 days or a month by following the three-column principle to check accuracy (Guo, 1982). The separate recording of transactions and the posting and trial-balancing approach allowed merchants to keep track of an increased volume of transactions that were also increasingly complex (Guo, 1982; Lin, 1992).

Accounting for merchant families in Japan

Compared to China, accounting practices in pre-modern Japan were very different, especially in terms of their relationship to the Japanese imperial system. Established around the seventh century (Kinsley, 1989), the role of the emperor in Japan has since shifted from a role with actual power to a role with symbolic authority. During the earlier Aska and Nara periods (645–794 AD), the royal court controlled most of the land in Japan, but as private ownership of land became permitted from about the eighth century, a new class of powerful clans with social privileges emerged. These clans gained power by acquiring and controlling a vast field of land that lay beyond the political jurisdiction of the royal court – this type of manor was called ‘Shoen’. The number of Shoen significantly increased in the Heian period (749–1185) and attracted more peasants to reside on the estates. From the tenth century, such clans became a powerful class of warrior aristocrats called Kenmon who came to share political power with other dominant clans such as the Fujiwara family. These clans had armed forces strong enough to resist imperial demands for tax levies and land confiscation (Murdoch, 1925). With the formation of the Kamakura shogunate ¹⁵ in 1192, the sovereign power of Japanese emperors was further constrained (Cullen, 2003).

With political authority effectively dispersed among local clans, accounting was rarely viewed as a political institution for the exercise of centralised sovereign power in pre-modern Japan. Rather, attention has focused on the role of accounting as a tool for commercial purposes, such as for-profit calculation in commercial trades engaged by influential merchants, or, at most, in measuring the performance outcomes for the stewardship of clan manors. There have been a few studies that have examined accounting records kept by local Japanese clans, including the shogunate, in the feudal period (see Ohno, 1996; Loijima, 2004; Oguchi, 2020), as opposed to studies of the accounts of large merchant families. Since most of these accounting records consisted of simple income and expenditure data, they have not received much attention from Japanese accounting historians, compared to the accounting books kept by powerful merchant families in the same period that had also recorded business claims and debts. Similarly, while there have been some historical studies on the financial activities of Japanese court nobles, including the imperial courts, prior to the seventeenth century (see Ihara, 1995; Hongo, 1998), a specific examination of imperial accounting or bookkeeping practices has yet to be presented. Considering the limited and fragmented influences of emperors in the political organisation of pre-modern Japanese society, a centralised, macro-level function of accounting, at the state or empire level, has not been identified in Japanese accounting studies.

In contrast to Chinese historical documents, extant records of feudal Japanese accounting have almost exclusively derived from and focused on the bookkeeping techniques developed by influential merchant families for their economic interests (Kawahara, 1977; Nishikawa, 1956; Ogura, 1982; Shimme, 1937). The private nature of these records has meant, however, that historical records of pre-modern Japanese accounting are scarce as they were largely kept and taught inside the merchant families:

There are two areas of study in Japanese accounting history: indigenous methods of bookkeeping and Western bookkeeping introduced to Japan. The study of the former is especially rare because the traditional usage of accounting evolved in the larger business houses in the Tokugawa era (1600–1867) as a secret of each family to be handed down from fathers to sons. No outside writers of treatises on bookkeeping appeared and nobody attempted to formulate the reasoning or theory of it. (Nishikawa, 1978: 79)

Auyeung's (2002) ¹⁶ research also indicates that separate bookkeeping methods were developed and kept secret by independent merchant families, such as the Nakais, the Mitsuis and others. According to Nishikawa (1956), the earliest reference to merchant account books in Japanese history was in 1520, and the oldest books of accounts that survive to the present day are from 1615 and 1634, respectively, being business ledgers kept by influential merchants. The common account books kept by early merchants included ‘daifukucho’ (similar to present-day ledger account), ‘kaicho’ (purchase-book), ‘uricho’ (sales-book) and ‘kingindeiricho’ (cash-book) (Nishikawa, 1956). These merchant books became available for research during the early twentieth century only. As such, the first substantial research that systematically analysed Japanese indigenous accounting methods is ‘Goshu Nakaike Choaihoho’ (Bookkeeping Methods of the Nakai Family) by Ogura (1962), which examined the account records of the Nakai family over the 150 years from 1734 (Murdoch, 1925; Nishikawa, 1978).

While these indigenous Japanese accounting practices were fundamentally based on a single-entry bookkeeping method, certain features exhibited attempts to maintain a duality of entry to check accuracy (McKinnon, 1994; Ogura, 1982). For instance, in the Nakai merchant family which had branch offices scattered throughout Japan, each division or department within the branch office kept records of its daily transactions. These records were then cross-checked every evening to ensure each entry had a corresponding entry in one of the other books. If a matching pair of entries was identified, a red tick was added next to each entry. Once all the transactions were accurately recorded in their correct accounting books, each entry would have had a red tick mark beside it (Ogura, 1982). Ogura (1982) has suggested that this was not a form of dual accounts, where a debit entry must be balanced by a credit entry, as required by Western double-entry bookkeeping method. Rather, it was a checking procedure performed by the Nakai family and functioned in a similar way to the trial balance process used in the Western system.

Another example of the dual-checking mechanism was the duplication of profit calculations. One profit calculation was made by matching expenses with income, and another was made by comparing the opening and closing balance of net assets (Ogura, 1982). These two profits needed to be the same, which, according to Ogura (1982), functioned as another procedure to check for errors. Ogura (1982) also explained another unique practice of the Nakai family headquarters was their charging interest on working capital as a way to manage the branch operations. Ogura argued that these combined accounting procedures undoubtedly played a significant role in the development of capitalism in Japan due to the enhanced accuracy of information provided. Scholars who have studied the accounting records of other major merchant families have noted that similar accounting practices were relatively widespread among Japanese merchant houses but were not found in the practices of smaller merchants (Nishikawa, 1993; Taketera, 1980; Taketera and Nishikawa, 1984). The dual-checking system was adopted mainly for business management purposes, with a strong emphasis on profit calculation. In comparison, profit determination was never a focus of Shangji system in China, and ‘the method of profit determination did not exist until the fifteenth century’ (Guo, 1982: 232). It is worth noting that this more sophisticated system was only adopted by major merchant houses that had branches across Japan; others still maintained a more simplified and intuitive form of practice.

Comparison to the West

In the study of accounting history in both Japan and China, accounting scholars have displayed a tendency to view the Western double-entry bookkeeping system as technically superior compared to their indigenous methods. Often and unconsciously, Western double-entry bookkeeping became a benchmark for advancement. As such, some researchers argued there was no double entry comparable to the Western bookkeeping system during the Tokugawa era and noted it as a weakness of the Japanese system (Nishikawa, 1993). Ogura (1982: 151) argued that this was because ‘there was no simple, direct way to examine the correctness of entries such as the trial balance of the Western system’. Similarly, scholars in China have attempted to argue that similar or comparable double-entry bookkeeping methods existed in their countries earlier than in the West, for instance, in the studies of the ‘Longmen Zhang’ (Dragon-gate) bookkeeping method that was adopted by Shanxi merchants in the banking and salt-trading activities during the Ming (1368–1644) and Qing dynasties (1644–1912). This method used ‘shou’ (receipt) and ‘fu’ (payment) as symbols to record the cause and effect of each transaction with a principle of ‘tiandihe’ (heaven matching with earth) balance, which, to some extent, was similar to the Western accounting equation of the balance sheet (Chen, 1998; Song, 2022). Some accounting historians in China have argued that Dragon-Gate bookkeeping was the double-entry method (Auyeung et al., 2005; Chen, 1998).

While the simpler single-entry method may appear to be less advanced than the double-entry system, it was developed due to its practical, contextual use. The indigenous methods that were fundamentally built upon a single-entry method provided adequate information for the needs of the pre-modern societies of both China and Japan. China remained an agrarian society for millennia, in which wealth was primarily generated from cultivating land, with less human movement and more predictable economic outlooks (Wittfofel, 1957). Similarly, in the Japanese feudal economy, ‘the production and distribution of goods were organised on a small scale and business transactions were generally small and simple’ (Nishikawa, 1956: 381). As argued by Littleton (1968), in such pre-modern societies where populations largely consisted of peasants and artisans with only a few people of wealth engaged in trade, there were inadequate incentives for the emergence of a double-entry system that emerged in the West during the Renaissance. In this respect, both China and Japan share a similar historical background: both were largely agrarian societies that featured a stable economic and societal structure. This historical context explains the more limited scope of bookkeeping techniques in the pre-modern period in the two societies. Both accounting systems essentially produced historical information regarding output for the custodianship of valuable economic resources at both the governmental (for emperors) and private (for landlords or merchant families) levels. But as shown above, accounting can also be seen to respond to changing circumstances (Paton, 1922). More sophisticated dual recording procedures, such as the Dragon-Gate method among Shanxi merchants, or the double calculation of profit method used by the Nakai Family, emerged to accommodate more complex business activities, which required more complete and accurate information to account for a largely increased volume of operations, particularly to determine periodic earnings.

This shared East Asian historical experience contrasts with the emergence of double-entry bookkeeping method in Renaissance Europe, where the expansion of a merchant economy created auspicious conditions for the development of complex accounting records. As Littleton argues, it is ‘wealth in the form of goods and ships which is active, turning over, [and] ever changing in producing more’ and the idea of productive capital that became ‘a true antecedent of double entry [bookkeeping]’ (Littleton, 1968: 24). The double-entry bookkeeping technique has indeed been argued as crucial to the development of capitalism, from Sombart's claim that ‘one can scarcely conceive of capitalism without double-entry book-keeping: they are related as are form and content’ (Sombart, 1924, cited in Yamey, 1956: 9), to Weber's notion of ‘rational capitalism’ (Holton, 1983: 166), for which the double-entry system made possible the rationalist pursuit of profit. The duality of entry provided a convenient check on the accuracy or completeness of ledgers which could then form the basis for synoptic statements of profits and capital (Yamey, 1956). Compared to single-entry methods, the balancing of the ledger in the double-entry method provided a more orderly measurement tool that ensured consistency between profit calculation and changes in asset values (Yamey, 1956). This double-entry system responded better to the more dynamic nature of business transactions, bringing the precision required for success in the world of trade. This can be contrasted to the societal needs of pre-modern China and Japan, where accounting practices reflected a more stable and streamlined economy. Commenting on the traditional Japanese single-entry bookkeeping system, Francois Caron – director of the factory of the Dutch East India Company in Hirado from 1639 to 1641 – regarded Japanese methods as ‘adequate for contemporary purposes’, and that ‘they have not the Italian Manner of Keeping Books, and yet fail not in their calculations’ (Nishikawa, 1956: 380).

China's response to Western influences since the late nineteenth century

As a result of their long historical experience with centralised political governance, Chinese rulers have consistently opposed institutional reforms that might compromise a centralised political hegemony. After their defeat in the Opium War in 1842, the Qing rulers were coerced to open their borders to international trade, prompting them to undertake reforms. Their focus during these reforms was on ‘maintaining the power structure of the day and in using modernisation only for personal and political aims within that structure’ (Fairbank and Reischauer, 1989: 336). Facing new external threats, a Self-Strengthening Movement (1861–1895) was launched that aimed to strengthen Chinese economic and military capacities by learning from the West. Western technologies were imported and Western scientific knowledge was translated into Mandarin Chinese. Substantial resources were directed to heavy industries that would strengthen China's military-economic capacities, such as building warships, railways and telegraph lines (Qu, 2016). By 1894, China had established more than 100 Western-style industrial enterprises in sectors such as machinery, railway, printing, silk, flour and paper (Song, 2022). Along with this development, Western-style double-entry bookkeeping and reporting methods were introduced to meet the needs of these new industrial developments and associated commercial trade (Chen, 1998; Gardella, 1992).

Knowledge of Western double-entry accounting was primarily guided by Chinese scholars who were educated overseas, more particularly from Japan, where Western accounting methods had been adopted since the Meiji reform in 1868 (Guo, 1982; Nishikawa, 1956). The authors of the first Chinese books on double-entry methods, including Series Accounts (1905) and Bookkeeping for Banks (1907), stated that the books resulted from their studies of Western-style accounting methods in Japan (Guo, 1982).

In the last few years of the Qing Dynasty (1644–1912), Western double-entry bookkeeping methods were widely adopted in Chinese customs, railways, post offices and banks, which were also under significant Western influence. Foreign personnel were hired to provide training to domestic officials in these areas. For example, the Qing Royal Court appointed an Englishman, Robert Hart (1835–1911), as the Inspector-General of the Chinese Imperial Maritime Customs. He became a powerful Minister in charge of customs across the country. From 1863 to 1911, Hart introduced the British customs management model to China, including the business processes of accounting, statistics and auditing measures (Scott, 2008).

The Self-Strengthening Movement did not, however, result in the same success as the Meiji reforms, as we discuss later. Instead, domestic conflicts between reformists who advocated for more radical reforms of China's political institutions and conservative forces in the Royal Court who advocated the status quo were so intense that a military coup eventually overthrew the Qing dynasty in 1912. The new Republic of China (ROC) ¹⁷ government made explicit efforts to copy Western-style accounting measures, mainly in budgeting, to improve national fiscal management (Guo, 1982). An ‘Accounting Law’ was one of the first laws released by the government in 1912 to assist national economic development. The Accounting Law was largely copied from Japanese Accounting Law, which focused on government budget and final accounts, receipts, payments and cash status (Aiken and Lu, 1993). As such, annual budgeting and ledger books were set up to account for annual fiscal expenditures and receipts, and annual accounting statements were required to report to the central government of ROC the performance outcomes of budget items (Guo, 1982). A Ministry of Finance was established to oversee ‘the country's finances, accounting, taxes, fiscal debt, currency reserves and banking affairs, supervising the finances of various government and public bodies under its jurisdiction’ (Chapter 2 of the ROC Government's ‘Financial Administration Act’, 1912).

The early ROC regime ¹⁸ was chaotic as the period was characterised by constant political and military conflicts, both domestically – among disparate local warlords and the Communist Party of China (CCP) ¹⁹ – and externally, such as in the war with Japan from 1937. Conservative forces that aimed to bring back a system with a sole ruling power were also strong during this period as China struggled to establish a representative democratic republic. The development of accounting, like all other sectors, was disrupted in this unstable socio-political environment (Chen, 1998). During the brief interludes of peaceful times in the 1920s and 1930s, there was evidence of strong Western influences on the changes in Chinese accounting practices that had evolved to cope with the expansion of commercial activities (Peng and Brown, 2017; Xu and Xu, 2008). A group of scholars in the field of accounting endeavoured to reform traditional Chinese bookkeeping methods, advocating the assimilation of Western principles (Xu et al., 2019). This epoch was perceived as a seminal phase in the nascent stages of modern accounting development in China (Xu et al., 2019). A general trend during this period, according to Guo (1982), was that institutions continued to slowly incorporate Western-style accounting methods, including in the establishment of the accounting profession.

This minor tendency to copy Western accounting practices, however, was reversed after the establishment of the People's Republic of China (PRC) in 1949. During Mao's regime (1949–1976), the Chinese political system was characterised by class struggle, public ownership and central planning (Guthrie, 2006). The market-based private economy was largely eliminated, and capitalists were deemed class enemies (Schell and Shambaugh, 1999). Western-style accounting practices, including the bookkeeping symbols of debit and credit, were soon banned, as such practices were seen as working for class enemies, the capitalist bourgeoisie, by the CCP (Xu et al., 2014). Instead, China switched to a nationwide Unified Accounting System (UAS) based on the model implemented in the Soviet Union at the time (Aiken and Lu, 1993). The UAS prescribed specific instructions on the chart of accounts, ledgers, format and procedures of accounting reports for each sector. Overall, the UAS placed highly standardised accounting procedures sector-wide across the nation, with a primary focus on cost planning and management (Zhang, 2021). A cash-based budgetary reporting system was adopted to centralise all fiscal revenue and expenditure management for the central government within this tightly controlled economic system (Aiken and Lu, 1993; Zhang, 2022). During this period of PRC history, the logic of double-entry bookkeeping was inherited from the previous period, but with considerable amendment; for instance, the symbols were changed from ‘debit/credit’ to ‘receipts/payments’ to remove the ‘capitalist’ feeling of the words. ²⁰ During the Great Leap Forward (1958–1962) and Cultural Revolution periods (1966–1976), there were often instances where simplified bookkeeping methods were adopted to replace double-entry in order to make accounting more accessible to ‘proletariats’ (Xu et al., 2013, 2019). As the socio-political environment was overhauled in the Maoist period, macro-level managerial control and the centralisation of political power, which heavily featured in imperial Chinese governance as explored above, returned to the centre of accounting (and other) objectives in China after 1949.

After the opening-up and reform of the Chinese economy since 1978, Chinese accounting practices appeared to shift again. Successive post-Mao governments transitioned the Chinese economy to adopt a Western-style market-based economic system. In this context, a nationwide set of Chinese accounting standards – the Accounting Standards for Business Enterprises (ASBE) – was developed alongside the transformation of many state-owned entities (SOEs) into private or share-holding companies. The contents and intentions of the ASBE were largely aligned with their Western counterparts, more particularly the International Financial Reporting Standards (IFRS). Reforms were also introduced in 2014 in the government sector to develop an accrual-based Whole-of-Government Financial Reporting system of the kind that has been widely adopted in major Western governments, to supplement the existing cash-based budgetary reporting system (Zhang, 2022). This ongoing reform effort aims to report the value of assets and liabilities owned by governmental bodies and to provide performance information on the productivity of governments that is not reported under the cash-based budgetary system. From a technical perspective, this reform reflects China's willingness to embrace the perceived benefits of the Western accrual-based financial accounting system in facilitating more efficient governmental performance (Broadbent and Guthrie, 2008; Zhang, 2022).

Despite the similar technical appearance of contemporary Chinese accounting to Western standards in both private and public sectors, a deeper structural factor – a mindset towards political governance in fact – indicates a continuity in the relationship between accounting and the centralised state from the pre-modern past into the present. The modern Chinese state's interference in economic affairs features heavily across PRC history from Mao to Xi but has been rendered more obvious after President Xi came to power (Lardy, 2019). Researching contemporary accounting practices in China, Zhang (2022) revealed traces of institutional arrangements, such as the exclusion of SOEs from government financial reporting and the adoption of the IFRS, which speak to an ambiguity rather than transparency of accounting rules and practice that masks advantages granted to state institutions, such as the SOEs. This suggests that the adoption of Western accounting in China may not be intended for the purpose of enacting market efficiencies, as presumed by a neoliberal ideology towards accounting technologies such as the New Public Management in Western nations. Rather, the adoption of Western accounting has been put to use in refining the state apparatus for more effective and centralised single-party control (Zhang, 2022). As seen from these changes, there appears to be a recurring pattern in which the ruling authorities in China inherited their predecessors’ inclination to maintain a highly unified power, while employing Western knowledge and technology. This Chinese political context gives accounting a unique significance compared to its role in Japan since the nineteenth century, which is discussed in the next section.

Japan's responses to Western influences since the nineteenth century

Compared to China, Japan's anti-Western mindset was brief, tempered by the defeats suffered in battles of Satsuma and Choshu against Britain and other Western countries in 1863 and 1864. Faced with powerful military threats from the West, the newly restored Meiji Monarchy started to embrace nationwide institutional reforms after 1868 with the aim of building a modern, sovereign nation. As part of the institutional reforms, education of the general public was emphasised as the basis from which a modern nation could be built. In this process, bookkeeping skills were identified as essential arithmetic and incorporated into the curriculum of public education (McKinnon, 1994). For instance, Norihide Kobayashi's (1876) translation of The Science of Double-entry Book-keeping was used as a textbook, designated by the Ministry of Education in bookkeeping classes established in the 1870s at elementary and junior high schools (Tsumura, 2020; Yano, 2020). The industrial development policies adopted by the Meiji government, ‘Shokusan Kogyo’, had also emphasised the adoption of technologies from Western countries such as France, Britain, Germany and the USA to build up Japanese modernity. Double-entry bookkeeping was also introduced as a method of corporate management along with other manufacturing technologies to large-scale business corporations ²¹ (Nishikawa, 1956).

Similar to China, foreign technicians were hired by the Meiji government to undertake important management roles, and this significantly accelerated the distribution of Western accounting knowledge in Japan. As Chiba (1987) reveals, the Ministry of Finance hired a Scotsman, Alexander Shand, to assist in the operation of the First National Bank, which was established in 1873. He taught Western accounting practices to be implemented at the Bank. ²² Shand's teachings were later published by the Ministry of Finance as The Detailed Method of Bank Bookkeeping (1873) and Shand's bookkeeping techniques came to be practised across all domestic banks up until after World War II (Kurosawa, 1990).

In contrast to China, which exhibited a pronounced reluctance to alter its institutional framework, a crucial part of the Meiji reforms involved the deliberate embrace of Western-style institutions, such as the Meiji Constitution and nationwide business laws. Western-style accounting and financial reporting practices were considered ‘a by-product’ (McKinnon, 1994: 193) of such initiatives. For instance, a Commercial Code was promulgated in 1890 following the German Commercial Code of 1861, which required all merchants to keep a system of commercial books, including recognising inventory and producing balance sheets. This code and subsequent revisions also introduced the idea of external accountability requiring limited liability companies to present their accounts to shareholders and to publish their balance sheets.

It is not difficult to sense the urge towards self-strengthening (and later expansion) in Japan as a mindset driven in avoidance of the threat of colonisation by a foreign power. The Meiji reforms brought Japan rapid industrial growth and modernisation in which people and resources were mobilised to protect the independence of the nation by strengthening its armaments via conscription and military reforms. Overall, the Meiji era inaugurated a period in which economic and political power was concentrated within central government. This political centralisation led to the later rise of Japanese imperialism and military power in the early twentieth century (Henshall, 2012). Japan was soon engaged in wars, such as the Sino-Japanese War (1894), Russo-Japanese War (1904) and World War I (1914), out of which the ideas of planning and control continued to gain popularity. The government started to promote industrial rationalisation in the 1930s. For example, the Ministry of Commerce sought to standardise the financial reporting practices of Japanese corporations. For this purpose, the Financial Management Committee was formed by the Ministry in 1930 to promote the standardisation of financial information disclosures made by corporations nationwide (Chiba, 1998).

The controlled nature of the Japanese economy intensified with the enactment of the National Mobilization Law in 1938, which accorded more power to the government to control resources and people for the sake of maintaining warfare capabilities. Resources were assigned with priority to the industries that the government designated as strategically important. Corporate governance mechanisms became highly integrated with government and military influences (Okazaki, 1999). Paralleling the Chinese case, the function of accounting information was featured strongly in centralised government control during this brief period. This was particularly exemplified through the cost accounting measures that provided important information enhancing efficiency in munitions factories for the military (Kurosawa, 1990). Again, the military relied heavily on models used in Western countries, for instance, German rules for government procurement were said to be referenced in the drafting of the Japanese army's cost accounting rules (Kurosawa, 1990). In the field of financial accounting, national control was also pursued via the effort to unify the presentation of financial statements at the individual corporation level (Kurosawa, 1990).

Following Japan's defeat in World War II, the Allies’ occupation and post-war rehabilitation policies initiated a transformation of the previous command economy into a democratic economic system. A pivotal component of this reform agenda involved the dissolution of the controlling power of the Zaibatsu. ²³ This was achieved by compelling the divestment of all shares held by the Zaibatsu parent company and their controlling families, with the requirement that these shares be made available for purchase by investors in the open market. The stock exchange, which had been inactive for many years, was reinstated and reopened in 1949. To meet the disclosure requirements of the capital market, the need to standardise the financial statements of business corporations was re-centred (Chiba, 2001). Under the supervision of the Allies’ General Headquarters, an Investigation Committee on Business Accounting Systems was formed in 1948, in which university accounting professors ²⁴ were involved in developing nationwide accounting principles. As a result, business accounting principles were promulgated in 1949 in conjunction with the Securities and Exchange Law (1948), creating a financial disclosure system that was highly comparable with the US corporate reporting model (Saito, 2011). A certified public accountant system was also introduced following US practices. These changes in accounting regulations and practices were concomitant with a shifted mindset on the role of accounting that aimed to furnish information for the decision-making needs of external users, such as investors and creditors (Someya, 1989).

During the latter half of the twentieth century, Japanese accounting continuously evolved under the strong influence of Western practices, particularly the Anglo-American model (Suzuki, 2007). This evolutionary process led to the gradual standardisation of accounting practices across Japan, with the implementation of national standards, such as the Japanese generally accepted accounting principles and auditing standards (Suzuki, 2007). Scholars have postulated that standardised accounting practices have enabled indispensable information on the operational functions of business entities, industrial organisations and the broader economy as a whole, which therefore played an important role in facilitating the rapid growth of the Japanese economy during the prosperous decades of the 1960s and 1970s (Okazaki, 1995; Suzuki, 2007). During the comparable historical period in the twentieth century, China notably lacked the robust link between accounting and the national economy that was witnessed in Japan. The fundamental pillars of the Japanese business accounting system established during this post-war period were maintained and continuously refined throughout the remaining part of the twentieth century, and as a result, present-day Japanese accounting practices are highly parallel to Western practices. ²⁵