An investigation by Japan's Financial Services Agency has found that one in 10 listed Japanese companies deceived investors in financial statements, undermining the credibility of Japan's stock market and denting the country's reputation as an international financial centre.
The FSA gave all 4,547 listed companies a month to review their financial statements and report irregularities.
It said yesterday that 456 had admitted they made misleading statements, mostly about the size of stakes held by large shareholders.
"Errors in financial statements, whether they be intentional, unintentional or small, are damaging to the credibility of our financial markets and need to be addressed thoroughly," said Hirofumi Gomi, commissioner of the FSA.
The investigation was launched after Seibu Railway admitted that it provided false information on its top shareholders for more than 40 years to cover up a breach of ownership rules.
The company, which has lost more than 70 per cent of its value since the scandal emerged, was delisted from the Tokyo Stock Exchange's prestigious first section this week.
In response to the crisis, the FSA is considering new governance rules, based on the US Sarbanes-Oxley Act, which would force listed companies to spell out how they guard against wrongdoing. The rules could give Japan one of the toughest compliance regimes in the industrialised world but are likely to be resisted by companies because they would increase operating costs.
The FSA has suggested that executives be forced to document internal management controls, which could push many companies into updating or implementing compliance systems for the first time in years.
FSA officials have modelled the plan on Section 404 of Sarbanes-Oxley, which has prompted a backlash from US companies. They say its demands are too costly and intrude too far into the business world.
The FSA has also said auditors should verify management assessments and that companies in breach of disclosure regulations should be fined.
In another initiative, mimicking the US response to accounting scandals at Enron and elsewhere, the Tokyo Stock Exchange said last week that it would soon require executives, not only auditors, to certify the content of financial statements.
* Japan will cut spending virtually across the board next year, though the budget will increase 0.1 per cent to Y82,200bn because of higher debt interest payments and social security expenditure, David Pilling reports from Tokyo.
New bond issuance in the fiscal year to April 2006 will fall for the first time in four years from Y36,600bn to Y34,500bn ($332bn, €249bn, £170bn). That will shrink the dependency on debt issuance as a proportion of spending from 44.6 per cent to 41.8, though this is still the highest of any advanced nation.
