Last spring, the Japanese market was burned by fraudulent accounting scandals at firms such as Livedoor and the Murakami Fund, so it isn't surprising that regulators have been inspired to enact new compliance and governance regulations. The Japanese have begun implementing a version modeled after Sarbanes-Oxley. But we don't know whether it will be as onerous as the U.S. version.

Putting your Sox on
The formal title for this Japanese version of corporate governance is known as the Financial Instruments and Exchange Law, but it has been given the nickname J-SOX. It is intended to hold the country's executives accountable while it protects investors through greater transparency. And while it doesn't officially take effect until April of next year, companies are already implementing it. Many IT and accounting companies are already benefiting from the additional revenue as they begin offering services to help with the transition to the new environment.

The Japanese offices of accounting firms such as Ernst & Young, Deloitte, and KPMG are consulting with clients to get them prepared for implementation, while -- according to Forrester Research (NASDAQ:FORR) -- software companies like Oracle (NASDAQ:ORCL) are pushing software to help achieve compliance. Market research firm IDC says J-SOX could generate more than $2 billion in revenue in 2008, primarily in IT upgrades.

That could help smaller consulting firms such as Motley Fool Stock Advisor recommendation Resources Global (NASDAQ:RECN) regain the luster they had when J-SOX was first rolled out last year. Resources Global has reported receiving some sizeable engagements from Japanese businesses and expects that kind of response to mushroom as April draws closer. Good thing, too, because the auditing side of its business, particularly SOX compliance, has been the one part of its operations that hasn't been growing.

Yet Resources Global and other consultants shouldn't necessarily count on J-SOX being the watershed event that Sarbanes-Oxley was. There are some significant differences between the two laws, and while there are some large questions looming about what it all means, it doesn't look as though Japanese companies will be as burdened as their American counterparts were.

We only want to help
J-SOX has four goals for the 3,800 publicly traded Japanese companies: effective and efficient operations, reliable treasury documents, compliance with laws and regulations, and maintaining and safekeeping assets.

Sounds familiar, but implementing them should be different. Whereas U.S. regulations require companies to now disclose any "material" error in reporting, under J-SOX, companies have to report only errors that result in a greater than 5% change in group pre-tax income. Japanese auditors will also be allowed to use company-provided documentation, and while the concept of auditor independence is similar to what it is here, many companies are permitted to and apparently do rely on the influence of their auditors. Moreover, auditors won't have to report back to any government agency on results.

Much of what is being implemented is considered guidelines, with corporate management left to interpret what will be covered. Certainly, such flexibility can have its uses, but one wonders what Bernie Ebbers, Kenneth Lay, or Jeffrey Skilling would have done with such flexibility.

One area, though, where J-SOX is similar to Sarbanes-Oxley is in creating demand for qualified accountants. There is a dearth of accountants in Japan -- only 17,000, according to some estimates -- and there are just 1,300 certified internal auditors. This could pose a challenge to companies, because Japan lacks the CPAs needed to support all of these companies.

It won't be so easy to just hire international auditors with the requisite skills. Most Japan-based companies work in Japanese, so obviously that will be one criterion, but also the corporate culture is not exactly the same. As is the case in many European countries, shareholder interests are secondary to other concerns, including customer satisfaction and employee well-being.

The major instances of fraud and criminal actions that have been uncovered at some Japanese companies should make Japan more willing to adopt western-style corporate governance and oversight. That's not such an issue at foreign-owned companies in Japan, called gaishikei. And companies such as Sony (NASDAQ:SNE), Honda Motors (NYSE:HMC), and Nissan (NASDAQ:NSANY), for example, have probably already adopted such standards.

A clean start
We'll soon have a host of countries with new governance and compliance regulations. Following J-SOX should come K-SOX in South Korea, and there's already C-SOX, Canada's version of Sarbanes-Oxley that went into effect shortly after the U.S. version was enacted.

As capital markets become globalized, investors will look where there is a level playing field. The laws taking effect will reflect the realities and idiosyncrasies of where they are to be enforced, and though Congress debates changes to some of the more onerous aspects of SOX here at home, investors everywhere ought to benefit from the greater transparency that will result.

Motley Fool Global Gains scours the world's markets, looking for the best investments. A 30-day risk-free trial gives you front-row seats to the service that's outstripping the S&P and world markets.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.