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The countervailing power of Japanese auditors 松本, 祥尚 マツモト, ヨシナオ Matsumoto, Yoshinao open access Commercial Code audit Securities and Exchange Law audit Kansayaku Kaikei-kansanin Non-legitimacy or legitimacy opinion (in CC) Adverse Qualified fair or Unqualified opinion (in SEL) Opinion Shopping Bargaining range Uniformity or harmonization of double legal audits Affirmative qualification False statement Delisting provision In general theory, an auditor is asked to check an act of director in company as a part of corporate governance. Control function by each auditor is arranged in Japanese two legal institutions which are Commercial Code (CC) auditing system by auditor (Kansayaku) and accounting auditor (Kaikei-kansanin) and Securities and Exchange Law (SEL) auditing system by CPA auditor. Therefore, the business control systems are established as formal mechanisms better than other countries. But in relation with recent general contractor's corruption, an auditor took part in the malfeasance act with director rather than carried out his duty. On this account, criticism that auditor did not say what he should say has fixed. In this paper, we make clear whether such criticism is true and he performs his control function. And if he does not accomplish his function, we examine what kind of causes prevent its execution. Auditor originally directs client's accounting procedure correctly by his authority to attach qualification to audit report. Nevertheless, in our audit for listed company, an adverse opinion and denial opinion have not been expressed, especially since 1975 when CPA auditor was introduced into CC audit and unified CC and SEL audits. We found the causes that a qualified opinion has not been expressed were following two in spite of above formal system. First, while it is connected with negative (non-legitimacy) opinion in CC audit to attach qualification to his report as accounting auditor, its qualification reaches positive (qualified fair) opinion in SEL audit as CPA auditor. As a result, opposite audit opinions are expressed in unified double legal audits (CC audit and SEL audit), and it contradicts the harmonization or uniformity of both. Second, if an auditor expresses negative opinion pointing out falsehood in financial statement, the client will be delisted on the basis of stock market delisting provision. Based on above two causes, an auditor does not intend to reach negative opinion, but enforces to transfer negative opinion to positive opinion by himself. Even if Japanese auditor can attach qualification to his report, as a result of such self-enforcement, he cannot help relieving his all negative qualifications to No.2 affirmative exception (for accounting change with justifiable reason) In short, we can understand the auditor's countervailing power is restricted. By this restriction, even if there is conflict between auditor and client, the auditor himself amends his own opinion into client's receivable level and both parties tend to maintain the contract relation. Therefore the opinion shopping has never happened explicitly in Japan. In summary, Japanese audit system has the following special features. (1) While the auditor has the legal authority to freely exercise his right to express the audit opinion he considers appropriate， his economic incentives attenuate the actual exercise of this right Auditor's business affiliation with the client, and the interaction of audit opinion with other laws and regulations diminish auditor's bargaining power. (2) When a disagreement arises between the auditor and his client, both try to maintain their organizational relationship by internalizing the change (e.g.，replacement of auditor in auditing firm). 香川大学経済学会 Economic Society, Kagawa University 1995-11-01 eng departmental bulletin paper VoR https://kagawa-u.repo.nii.ac.jp/records/6209 110000133924 AN00038281 0389-3030 香川大学経済論叢 Kagawa University economic review 68 2・3 695 724 https://kagawa-u.repo.nii.ac.jp/record/6209/files/AN00038281_068-2+3_L499.pdf application/pdf 1.4 MB 2020-12-22