Associate Professor, Faculty of Business and Commerce, Keio University
Taichi Kimura
Financial accounting theory
Assumed current position in 2024, after serving as a full-time lecturer at Tama University. Master’s Degree (Commercial Science). His recent interest lies in making explicit the implicit assumptions made when conducting financial accounting. In this area, he is looking closely at the influence that the characteristics of double-entry bookkeeping—the means of financial accounting—have on financial accounting (and those who carry it out). He has published papers in Sangyo Keiri (Industrial Accounting), Boki Kenkyu (Bookkeeping Research), Kaikei (Accounting), and other journals.
Making Explicit the Hidden Assumptions in Conducting Financial Accounting
Associate Professor, Faculty of Business and Commerce, Keio University Taichi Kimura
Financial accounting theory—my area of specialization—is one field of accounting studies. Accounting is the subject of these studies, and can be broadly described as the act of understanding corporate activities from the perspective of monetary flows. Within such accounting activities, financial accounting can be described as: (1) the act of expressing the results of corporate activities as the financial status and business performance (= accounting information) from the perspective of monetary flows, and (2) the act of communicating that information to external stakeholders. Among these characteristics of financial accounting, property (2) is closely related to the fact that financial accounting is conducted based on rules. This is because if the preparation of accounting information is not conducted based on certain rules when the recipients of accounting information are people outside the company, problems may arise such as people receiving the accounting information being unable to compare the accounting information of different companies, or being unable to understand what the information means. Therefore, in financial accounting, rules are established regarding how to express the results of corporate activities as financial status and business performance (= accounting methods) when such activities occur.
Due to these characteristics, there seems to be a widespread image of accounting studies (especially financial accounting theory) as a discipline focused on memorizing these rules. However, the existence of such rules means, conversely, that there are cases where multiple accounting methods can be envisioned for a single corporate activity. This is because if there were only one accounting method for a single corporate activity, accounting information would be prepared using that method without needing to establish it as a rule. There is room to ask “why?” when deciding which method to recognize (or which method not to recognize) as a rule from among multiple possible accounting methods. That is, questions arise such as “Why is that method recognized (or why is that method not recognized)?” or “Why is this method not recognized while that method is?” Answering such “whys” is (at least one aspect of) the academic discipline of financial accounting theory.
Currently, financial accounting rules are determined through discussions by accounting experts such as preparers of accounting information, auditors, users, and researchers (while also soliciting opinions from the general public during the discussion process). The people involved in rule-setting can be described as financial accounting experts as well as representatives of the people who have no small stake in what rules are set. Therefore, the interests of people involved in financial accounting greatly influence rule-setting. On the other hand, it can’t be denied that norms and assumptions regarding the connection between the thing to be expressed (= corporate activities) and the expressed results (= accounting information) exist separately from interests. My major research interest is elucidating the norms and assumptions that people involved in financial accounting hold implicitly.
As just mentioned, my interest lies in revealing the norms and assumptions that people involved in financial accounting hold implicitly when conducting financial accounting. To that end, for accounting methods where rule-setting has been difficult, I am surveying opinions submitted prior to official announcement of the rule as a final draft, and extracting points of contention. As mentioned earlier, there may be cases where multiple accounting methods can be envisioned for a single corporate activity. One reason for this is that there are multiple perspectives on which aspect of the activity to focus on when expressing a single corporate activity as accounting information (I call this “what one wants to express”). When rule-setting becomes difficult, conflicts over which aspect to focus on, i.e., conflicts over “what one wants to express,” are often observed. I believe that norms regarding the connection between the object of expression and the expression results can be seen behind such conflicts.
I’m also creating fictional accounting methods that have never been presented before for certain corporate activities. By comparing such hypothetical methods with the methods that have been proposed so far (including those currently adopted in the rules), I explore the assumptions underlying previous discussions.
Finally, while conducting research like the above, I present the existence of double-entry bookkeeping, which is my particular focus. Double-entry bookkeeping is a system for recording corporate activities. I have described how financial accounting is the act of expressing the results of business activities, in terms of the financial status and business performance of a company, based on an understanding of the company’s activities. Corporate activities are understood by recording those activities through double-entry bookkeeping, and information indicating financial status and business performance is produced by organizing those records. That is, financial accounting is carried out by using double-entry bookkeeping.
This double-entry bookkeeping has several characteristics, such as making two entries for a single business activity when recording business activities. Since double-entry bookkeeping is used as the means of expression in accounting, I believe that the characteristics of double-entry bookkeeping have a considerable influence on what can be expressed in accounting. For example, in many corporate activities, two flows of things occur in a single corporate activity (such as when purchasing goods, there is (1) the receipt of goods and (2) the transfer of money). Therefore, the characteristic of making two entries for a single corporate activity is suitable for recording activities where two flows of things occur in this way. However, the distinguishing characteristic of double-entry bookkeeping lies in consistently applying this double-entry principle in all records (including corporate activities that seemingly do not give rise to two flows of things). While there are significant advantages to consistently applying double-entry, it is difficult to record a single corporate activity in cases where it is hard to capture the activity well from two aspects. In this way, I believe that even if there are “things one wants to express,” there may be constraints deriving from “things that can be expressed,” and among these, there may be constraints that arise due to the recording system of double-entry bookkeeping as a means of expression.
On the other hand, reinterpretations or expanded interpretations of existing concepts are also put forward in order to be able to effectively capture a single corporate activity from two aspects. Of course, there are cases where such new (or expanded) interpretations are not accepted, but if they are accepted, they become new norms or assumptions. In that sense, I also believe that the constraints due to double-entry bookkeeping are a driving force that creates such norms and assumptions.
In this way, I am advancing my research by focusing on the effects that the characteristics of double-entry bookkeeping as a means of expression have on accounting, in order to clarify the norms and assumptions that people involved in financial accounting hold implicitly.