Academic journal article Journal of Legal, Ethical and Regulatory Issues

Environmental Accounting of Small and Medium-Sized Entities Following the 2011 Tohoku-Pacific Ocean Earthquake

Academic journal article Journal of Legal, Ethical and Regulatory Issues

Environmental Accounting of Small and Medium-Sized Entities Following the 2011 Tohoku-Pacific Ocean Earthquake

Article excerpt


The Japanese people listened to the following message from His Majesty the Emperor on March 16, 2011:

   I am deeply saddened by the devastating situation in the areas hit
   by the Tohoku-Pacific Ocean Earthquake, an unprecedented 9.0
   magnitude earthquake, which struck Japan on March 11. The number of
   casualties claimed by the quake and the ensuing tsunami continues
   to rise by the day, and we do not yet know how many people have
   lost their lives. I am praying that the safety of as many people as
   possible will be confirmed. My other grave concern now is the
   serious and unpredictable condition of the affected nuclear power
   plant. I earnestly hope that through the all-out efforts of all
   those concerned, further deterioration of the situation will be

According to the Nihon Keizai Shimbun (2011), in Miyagi prefecture, earth and sand containing arsenic shifted into residential areas from a disused mine. In addition, the newspaper reporters found when visiting Miyagi prefecture in April that more than a few transformers containing polychlorinated biphenyl (PCB), which had been in use at refrigerated warehouses, had been washed away. At the time, the newspaper's reporters were unable to take pictures because of the unrecovered corpses of victims.

Before Statement No. 18: Accounting Standard for Asset Retirement Obligations (ASBJ, 2008), Japan had not permitted accounting for an asset retirement obligation except as a reserve for the decommissioning costs of nuclear power units of an electric power company (e.g., Tokyo Electric Power Company, 1989, p. 35; ASBJ, 2008a, par. 22). Accordingly, small and medium-sized entities (SMEs) would currently not need to act in accordance with this statement. A sustainable society will ask an entity to protect the environment, so it has to account and report in such a way, regardless of whether it is a large company or an SME. Our previous study (Tsuji & Fujibayashi, 2011) finds that the voluntary recognition of the fair value of a liability for an asset retirement obligation is necessary for maintaining a sustainable society. When considering the users of the financial reporting of smaller entities, it is significant that the Corporation Tax Law (Act No. 34 of 1965) does not permit this accounting provision.

Under current laws, a transformer containing PCB that is not in use and is designated for exchange is usually stored in a designated area/room until disposal. We cannot define this as an asset retirement obligation. In practice then, an entity may account for provisions. However, in Japan, the Accounting Standards Board of Japan (ASBJ) developed the standards for asset retirement obligations, and the accounting standards for provisions have not yet converged (ASBJ, 2009). Moreover, at the international level, the International Accounting Standards Board (IASB) has not yet completed its project on improving IAS37: Provisions, Contingent Liabilities, and Contingent Assets, in spite of two recent exposure drafts (2005; 2010a).

At the national level, Japan has a set of domestic tax rules. SMEs have applied these to preparing their financial statements in practice. The experience of the recent earthquake suggests that SMEs in Japan should be treated in accordance with these financial accounting standards.


On April 22, 2011, in order to know how our customers were doing, we visited Miyagi prefecture, which was one of the prefectures in the Tohoku district that suffered direct damage from the earthquake. We were able to ask four presidents and representative directors of food industry SMEs about the influence of the earthquake at that time. Their common response was that although they wanted to give priority to the maintenance of employment, the impairments to the property of the companies were so serious that they believed they should obtain a loan from a financial institution in order to resume their business. …

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