Japanese Accounting for Provisions of Smaller and Medium-sized Entities in Harmony with the Environment

Abstract

The earthquake and tsunami(earthquake sea wave) on March 11, 2011 has caused great suffering to not only large companies but also small to medium-sized enterprises in Japan. The collateral value of their destroyed real estate does not allow banks to loan to them. In addition, the power shortage of electricity has obligated the entities to replace some of their least energy efficient equipment in use.

Most of the financial institutions researched soon after the quake seemed not to depend on their financial statements. The entities are not required to account for asset retirement obligations by the Japanese acts nor to account for all of the provisions by the accounting standards related to the entities.

In the case of the textile end-uses industry, accounting for asset retirement obligations and accounting for provisions will help the entities to deal with the problem. However, the differences between the financial accounting standards and the tax rules associated with them could often prevent the entities from recording such a provision because a provision in excess of what is allowed for tax purposes would not be tax deductible. In a sustainable society, it would be better that accounting treatment of the small and medium-sized entities be the same as for large companies in order to protect the environment.