The dual audit system for joint stock companies in Japan

The origin of the statutory audits of joint stock companies in Japan can be traced back to the Commercial Code of 1890 (CC) when audits by appointed individuals who served within the company as corporate auditors were established. These CC auditors, selected by shareholders, sought to protect the interests of existing stockholders not those of prospective public market investors. In contrast, Western style external independent auditing in Japan can be traced back to proposed but unsuccessful legislation at the beginning of the twentieth century, which subsequently came into effect in 1951 under the Securities and Exchange Law (SEL). This paper examines the circumstances and differences regarding the development of Japan's dual audit system in order to contribute to our understanding of comparative audit processes in developed economies.