Analysis of Factors Influencing Local Government Choice of Public Accounting Standards

Abstract

In this paper, I analyze what kind of factors affect a local government's choice of public accounting standards. In 2005, the Ministry of Internal Affairs and Communications offered two accounting standards, the “Kijyun model” and the “Kaitei model,” and requested that each local government chose one of them and prepare its financial documents accordingly. The Kijyun model is more detailed and incurs higher initial costs than the Kaitei model. Most local governments chose the Kaitei model to avoid the higher initial costs, but some small towns and villages chose the Kijyun model. According to my analysis, local government choices are affected not only by the government's size and financial condition but also by its desire to “maintain harmony” within the group. So, the government can promote utilization of financial documents for a local administration's fiscal structural reform by encouraging everyone to “maintain harmony.”