Digital Accounting Systems and Financial Reporting Quality of Listed Manufacturing Companies: The Mediating Role of Internal Control Effectiveness in Japan

This article examines the relationship between digital accounting systems and financial reporting quality among listed manufacturing companies in Japan, with particular attention to the mediating role of internal control effectiveness. Manufacturing companies process extensive and interconnected information concerning procurement, production, inventory, payroll, sales, fixed assets and international transactions. Digital accounting systems can integrate these activities, automate transaction processing, improve data traceability and increase the timeliness of financial information. Nevertheless, technology adoption alone does not guarantee reliable reporting. Poor configuration, weak access controls, inadequate segregation of duties, cyber threats, data migration errors and insufficient user competence can undermine accounting information. Drawing on the DeLone and McLean information systems success model, agency theory and the COSO internal control framework, the article develops an integrated explanation of how digital accounting systems may influence financial reporting quality through internal control effectiveness. The study adopts an integrative literature review and conceptual analysis, synthesising research on accounting information systems, automation, financial reporting quality and internal control, together with Japan's Financial Instruments and Exchange Act and its internal control reporting regime, commonly referred to as J-SOX. The analysis argues that digital accounting systems can improve reporting quality through data integration, processing accuracy, audit trails, timeliness and analytical capability. These benefits are expected to operate partly through more effective control activities, risk assessment, information flows, monitoring and information technology controls. The article identifies conditions that may weaken the proposed relationship, including legacy-system fragmentation, cyber risk, poor implementation governance and inadequate staff training. It develops six propositions and a conceptual model for future empirical testing among listed manufacturing companies in Japan. The article contributes a Japan-focused framework for understanding the mechanisms through which digital accounting systems can support high-quality financial reporting.