Adaptability to fair value accounting in an emerging economy A case study of China’s IFRS convergence
York University, Toronto, Canada, and
Received 28 July 2008 Revised 6 January 2010 Accepted 15 March 2010
Ryerson University, Toronto, Canada
Purpose – This paper seeks to assess the feasibility and desirability of a major emerging economy adopting and implementing fair value accounting (FVA), as codiﬁed in the International Financial Reporting Standards (IFRS), by studying China’s recent experience. Design/methodology/approach – The paper examines the extent of FVA adoption in China’s new accounting standards (“2007GAAP”), reasons for differences from the International Accounting Standard Board’s IFRS, and how 2007GAAP has been implemented in practice. Data are obtained from content analyses of IFRS and 2007GAAP FVA requirements, critical assessments of standard setters’ ofﬁcial statements, and analyses of empirical evidence from ofﬁcial reports, media, and academic research. Findings – The authors ﬁnd a high degree of adoption of IFRS FVA standards in China’s 2007GAAP for ﬁnancial instruments, but many differences for non-ﬁnancial long-term asset investments. Standard setters justify this divergence by fundamental characteristics of the Chinese environment. The resulting differences from IFRS in the 2007GAAP FVA standards, and in their implementation, challenge ofﬁcial claims of “substantial convergence” between 2007GAAP and IFRS. Hence, the beneﬁts desired by Chinese regulators from adopting FVA and international accounting convergence to IFRS may not be realized. Research limitations/implications – The ﬁndings are derived from aggregated data in government reports. These ﬁndings can be extended in future research by examining speciﬁc implementation outcomes in company ﬁnancial statements. Originality/value – The paper contributes a timely critical examination of a major emerging economy’s convergence with the controversial FVA requirements, which supports the IFRS’s standing as a high quality set of accounting standards. The ﬁndings provide new insights into factors that can impede international accounting convergence in emerging economies. Keywords Fair value, China, Accounting standards, Economic convergence, Economics Paper type Research paper
Accounting, Auditing & Accountability Journal Vol. 23 No. 8, 2010 pp. 982-1011 q Emerald Group Publishing Limited 0951-3574 DOI 10.1108/09513571011092529
1. Introduction This study focuses on China’s experience as an emerging economy that is adapting to fair value accounting (FVA) as part of its overall convergence with International The authors gratefully acknowledge the contribution of the two anonymous reviewers, and Maureen Gowing, Paul Polinski, and participants at the Canadian Academic Accounting Association and the American Accounting Association 2009 annual conferences.
Financial Reporting Standards (IFRS). The study’s goal is to assess the feasibility and desirability of this major emerging economy adopting and implementing IFRS FVA. In pursuing this goal, the study contributes to two streams of research: one on the challenges from the adoption and implementation of FVA, and the other on the possibility and desirability of the International Accounting Standard Board’s (IASB) convergence project. The superiority of FVA over historical cost accounting (HCA) has been gaining broad-based acceptance among accounting professionals and standard setters (e.g. Barth, 1994; Barth et al., 1995, 1996; Tweedie, 2006a; IASB, 2006b; Cherry, 2009; Mosso, 2009). However, the theoretical basis supporting such acceptance assumes that FVA will be implemented in well-functioning capital markets and ﬁnancial reporting environments (e.g. Ball, 2006; Barlev and Haddad, 2007; Penman, 2007), and most empirical...