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Confucianism is a cultural tradition adopted by the Chinese and the Japanese. The culture operates on the values of truthfulness, rituals, righteousness, benevolence, honesty, filial piety and loyalty. The doctrine of Confucianism was developed to act as a guide in all types of crisis. The doctrine advocated for communal welfare to be paramount rather than individual interests. The doctrine achieves the above by considering education as a vital part in social media marketing development as well as the economy. The doctrine despises competition, which, according to the People’s Republic of China contributed to the violation of Confucianism. The people also argue according to the doctrine, auditing is not right and the very act of auditing firms in the west shows a breach of trust. This paper will discuss the Confucian origins of Chinese and Japanese business and accounting and recent events (post-2005) that led to changes in accounting regulation and concepts in these countries.

The impact of Confucianism in East Asian Accounting is based on the tendency to concentrate on structure and form rather than creating room for innovative procedures. The culture of Confucianism has greatly affected businesses in that values advocate for nepotism to enhance loyalty to the nation, family and friends. Through this, they ensure secrecy of accountants, as they consider taking a middle approach to deal with uncertain situations. According toBeattie and Emmanuel, (2008), during the periods of Western Zhou Dynasty budgetary control was sophisticated and there was a single bookkeeping system. However, in the same period the imperial court had many difficulties in keeping track of government assets. This difficulty was tackled with the introduction of Sanzhufa (a three-pillar balancing method). This method worked by balancing the net asset or the surplus at the end of every accounting period. The formula involved subtracting disbursements from the revenues and whatever remained was equal to the surplus, hence the name three pillar balancing method (Bryant, 1933).

As the economic growth took center stage, there was rapid development in the private sector. The growth in the private sector prompted the businesspersons to introduce an advanced version of the three pillars, which was termed as Shizhufa (four-pillar balancing method)(Fisher and Roll, 1933). The four-pillar method was introduced during the Tang dynasty in A.D. 618-907). The method accounted for the balance brought forward because of a previous report. Shizhufa method used four variables, which involved adding the opening balance to the revenues and subtracting the disbursement, which would equal to the closing balance (Hudson and Takekoshi, 1930).

In the fifteenth century, there was a significant development in accounting due to the introduction of the Sanjiao Zhang (a three-leg bookkeeping method). This method almost looked similar to the modern ways of accounting as it contained a single entry and double entry. The name three leg bookkeeping was as a result of using a single entry to record cash transactions and the double entry to record credit transactions(Ogura, 1982). Between the reign of Ming Dynasty and Qing Dynasty, there was an introduction of a more sophisticated technique of accounting. This technique was known as Longmen Zhang or (dragon gate bookkeeping method). The method was an outdated way of double entry, which was advantageous as it provided for the determination of profit and the extraction of a trial balance. The dragon gate bookkeeping equation involved subtractingdisbursement from revenues and the result would equal the subtraction of owners’ equity and liabilities from assets. This method measured profit on a cash basis on both sides of the equation(Supple and Garnett, 1969).

Another significant advancement of the Chinese accounting is the introduction of Shjiao Zhang (four leg bookkeeping method) also known as (heaven and earth bookkeeping method). This method came in as an improvement of the previous methods as it expanded the classification and use of subsidiary records, which accommodated more complex, and large volumes of transactions. The method operated by recording transactions both cash and non-cash on a journal and then transferring them to the ledgers using the double entry procedures. This way of operation led to the name four-leg to differentiate extensions of the double entry in the three –leg (Toms, 2016).

The introduction of the double entry method was a significant progress in China’s accounting innovations. Despite the innovation, many substantial businesses did not employ the technique. However, banks and commercial firms employed the four pillar balancing method regardless of the size of the organization.

After the opium war in 1840, many merchants came to China and established businesses in the treaty ports. These merchants fuelled China’s industrialization through the provision of technology as well as connections overseas. These merchants also came with them accounting and managerial skills due to the exposure of their agents known as the Compradores to the western entrepreneurial and accounting skills. More the interactions of China with the western world grew rapidly, which led to imperialism exploitation, though they benefited from importing western science and military technology. The importation sparked the emergence of joint stock companies as well as fixed-cost capita during production (ZENG, 2017).

As a result of the encroachment of the western ways of accounting the Chinese realized some deficiencies in their traditional ways of accounting and thus changes had to be implemented. These changes included extending bookkeeping to financial reporting, for instance, the profit and loss statement for due to ownership and control in joint stock companies. Moreover, the increased investment in the capital called for more focus on fixed assets as well as the depreciation account.

The adoption of these changes showed that the traditional bookkeeping by the Chinese could not handle large scale and joint stock companies. Such inadequacies as highlighted by Aiken (1993), were brought by the traditional confidence in the honesty of managers, lack of formal source documents of transactions. The first change that took place almost immediately was the management-based trust. The second change was the unsystematic recording procedures to allow cross-referencing as well as align with rank value and perform arithmetic calculations (Fisher and Roll, 1933).The traditional bookkeeping systems were useless as a tool for internal control since they could not measure profit, no distinction between capital and revenue expenditure and depreciation was not accounted for.

Despite the deficiencies in the traditional accounting systems, the western accounting systems that could account for joint stock and handle financial reports, the Chinese never adopted the system. This is evident as materials found in Beijing City archives show that many commercial and industrial organizations continued to use the single entry, four pillars balancing method in the second half of the 19th century. Some used the partial double entry three leg bookkeeping method while a few used the dragon gate. Most of these methods continued to operate until the early years of the 20th centuries (Hudson and Takekoshi, 1930).

The continued use of traditional accounting systems was unable to handle joint-stock companies that were cropping up in China. FOR instance, Kaiping Coal Mines failed to issue dividends due to a fault in bookkeeping according to British Consular Reports from Tientsin 1912. Such inconveniences forced some companies to declare a fixed dividend of 10% irrespective to the company’s profit performance and also to exempt them from issuing financial reports. This system also meets some challenges since some argued that they did not get enough information relating to company financial performance (McKinnon, 1994).

The modernization of accounting in Japan

Japan was operating in an indigenous accounting system that had no nationwide uniformity. Instead, there were separate bookkeeping methods used and kept in secret. The bookkeeping systems were developed and kept secret by independent economic powers such as the Kondohs, Honmas, Hasegawas, Onos,Nakais, Tanabes and Tomiyama. Despite the secrecy, manuals used for bookkeeping were prepared and reserved by the mercantile families (Supple and Garnett, 1969).

According to Kim (1977), the Tomiyama bookkeeping system consisted of dual calculations. The dual calculation included proprietor’s equities at the end of the year, which equalled the difference between assets and liabilities at the end of the year. The second part, proprietor’s equity at the beginning of the year equalled the proprietor’s equity at the end of the year. On the other hand, the Tanabe family had three financial reports in the 19th century. These reports had a report on net income that compared opening and closing balance, a summary of revenue expenditures and another for assets and liabilities. However, the Tanabes operation management many iron forges in the Izumo province, which used more than thirty books that were used to prepare the periodic statement (Ogura, 1982).

Another family whose accounting records were discovered were the Nakais who referred accounting records as the ledgers of good fortune. These records consisted of dual entry in which transactions were recorded in two books. The Nakais referred to profit as tokuyo, or residual profits, which are the net profit gained after the given rate of return.

According to such forms of accounting systems, it shows that the double entry concept already existed in Japan. However, most Japan business people practiced single entry system referred to as the Daifukucho. The Dafukucho system consisted of four accounting books which are the ledger, also known as daifukucho, cash book (Kingindericho), purchase day book (kaicho) and sales day book (uricho). This system had no particular classification of accounts or distinct capital and revenue expenditures; rather the cash basis accounting was used (Postma and van der Helm, 1998).

Same as china these systems were inadequate as the economy continued to grow due to the opening of the ports to the United States of America. The Japanese responded with haste in adopting and modernizing the country. Thanks to the Meiji government, it established political and economic institutions that were based on western models to modernize the country. Moreover, the Japanese students obtained their education overseas to aid the Japanese national development agenda. Such efforts enabled the government to modernize strategic sectors and non-strategic consumer industries. The efforts were quickly spread to the private sector in which private entrepreneurs branched out into new fields.

The modernization of accounting in Japan was significantly realized in the 19th century after realizing that the indigenous bookkeeping methods were inadequate in handling western machinery and production. Contrary to China, Japan swiftly adopted the western accounting systems, in which double-entry bookkeeping was introduced on which a capitalistic economy would grow. Moreover, the Dutch, British, and French assisted the revolution as most of them were employed as accountants and implemented the accounting principles as well as the ledgers(Toms, 2016).

In addition, the assimilation of the western accounting system in the japans ways was further influenced by the publication and dissemination of accounting tests. The Japanese resorted to importing and translating accounting books into Japanese. Moreover, accounting schools were introduced which helped dispense western accounting knowledge.

Despite the adoption of the western accounting practices, Japanese people went ahead to introduce statutory regulations that aimed at regulating joint stock forms of business. The first regulation was the National Banks Act in 1872. This act ensured the uniformity of financial statements for national banks. Another regulation termed as the commercial code was introduced in 1890, which required businesses to maintain accounting books that contained an inventory of assets and liabilities as well as a balance sheet. Moreover, the law required accounts to be audited and presented to the shareholders (Zeng, 2017).

The reason why the western accounting system was adopted in Japan and not in China

The main reason is based on the political, social and cultural differences between China and Japan. China was resistant to change due to its centralized political power, narrow-based knowledge as well as the anti-merchant mentality. On the other hand, Japan had multi-structures of political powers that which aided in the adoption of change. Moreover, the Japanese were pro-merchant and had a broad learning (Postma and van der Helm, 1998).


In conclusion, China always upholds what has been developed indigenously rather than adopt new ways. This shows strong cultural ties to Confucian doctrines, which has seen China, lag behind in using universal accounting systems. On the other hand, Japan has managed to incorporate in the western system of account ting, which helps in creating universal financial reports that can be understood by investors from any part of the world. This shows that Japan is at the forefront in drifting from its Confucian origins.

List of references

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