Agriculture minister Koya Nishikawa said on Friday, Jan. 9 that the obligation for primary JAs to have their accounts audited by the Central Union of Agricultural Co-operatives (JA-Zenchu) should be abolished and a new system of auditing by outside accountants should be introduced.
Nishikawa’s remarks are highly likely to face strong opposition from the JA group and ruling Liberal Democratic Party members close to the group, who believe abolishing the current system which includes both financial and business management auditing would mean increasing costs for primary JAs.
Auditing of primary JAs is a major focus of discussions on agricultural co-operative reform, which will heat up later this month as the government is expected to submit a bill to revise the Agricultural Co-operative Society Law to the Diet in spring.
Under the current law, primary JAs with savings of JPY20 billion or more are required to have financial and business management audits by JA-Zenchu’s auditing section. However, the government’s Regulatory Reform Council, in its opinion issued in November, questioned the trustworthiness of JA-Zenchu’s auditing and called for the need to introduce auditing by outside accountants like other financial institutions.
Asked by reporters about how to revise the system, Nishikawa said he believes JAs should have audits by certified public accountants under the jurisdiction of the Financial Services Agency. Now that 60 years have passed since the original system was introduced, it will be better for JAs’ management to make the system more transparent rather than conducting audits within the group, he explained. He indicated that the government hopes to discuss the issue with the LDP and the JA group to find a point of agreement based on the idea.
His latest remarks are a large step away from the suggestion he made on Tuesday, Jan. 6, which is to let primary JAs choose between having audits by JA-Zenchu or by outside accountants. He apparently shifted towards the Regulatory Reform Council’s standpoint, pressured by Prime Minister Shinzo Abe’s strong intention to conduct drastic agricultural co-operative reform.
The agricultural ministry has maintained that the current auditing by the JA-Zenchu is functioning effectively. In 2007, then agriculture minister Masatoshi Wakabayashi responded in the Diet that the JA-Zenchu’s auditing, which comes together with management consulting, should not be replaced with outside auditing by certified public accountants. The ministry’s policy shift without sufficient discussion should also be questioned for its inconsistency.
<Analysis>
Agriculture minister Koya Nishikawa has said that the goals of agricultural reform are improving farmers’ income and revitalizing regional areas. In what way does entrusting primary JAs’ audits to outside accountants work to meet the goals? Abolishing audits by JA-Zenchu’s auditors who are well-versed in JAs’ services aimed at promoting agriculture and rural areas would go against the goals. It is necessary to make an explanation which can convince JA members.
JA-Zenchu’s auditing differs from other auditing in that it includes both financial and business management audits. It guarantees JAs’ healthy development and continuation of businesses which are invested, operated and used by their members. On the other hand, auditing by certified public accountants on listed firms is conducted in order to ensure that the books of accounts, which are used as information for making investment decisions, are properly maintained. Its objectives are different from JA-Zenchu’s auditing.
Accountants are restricted from conducting business management audits. If JA-Zenchu stops conducting audits, management conditions of primary JAs will not be reported to JA-Zenchu and Norinchukin Bank, and they would no longer be able to take measures beforehand to prevent business failures.
Nishikawa also said that primary JAs will have more freedom in doing business if JA-Zenchu’s legal authority to conduct auditing is eliminated. However, if JA-Zenchu loses its function of preventing business failures, it will become more difficult for primary JAs to take risks in management. Such a situation will not be good for JAs’ members. JA-Zenchu’s auditing, in which auditors with detailed knowledge of JAs conduct both financial and business management audits, is much more efficient and effective.
There are around 550 auditors certified under the Agricultural Co-operative Society Law working at JA-Zenchu’s auditing section. The ongoing discussion could make this qualification meaningless and is totally unreasonable.
(Jan. 10, 2015)