Chinas Ifrs Convergence

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China has a history of weak accounting policy, due to its market size and state-owned intervention. After the growth of its manufacturing industry, China needed to adapt to pressures of standardized accounting policy. The Ministry of Finance authorized the China Accounting Standards Committee (CASC) to develop and enforce proper accounting procedures. This committee was able to detect and report financial fraud, which lead to more reliable financial statements. Due to companies producing inaccurate financial statements, the Ministry of Finance required companies to restate financial errors that occurred after February 2006. Before this date, companies only had to post the corrected financials for future periods. Anther issue with China’s current accounting policy is that they were having trouble with anti-dumping acquisitions. Competing countries were complaining to the WTO that China was selling its goods for too cheap, leading to an unfair advantage. China felt that if they were to join with IFRS, then their credible financial statements would show that this was not the case.

Arguments For and Against Adopting IFRS

In 2006, China was able to adapt the Accounting Standards for Business Enterprises (ASBE), which was designed as a convergence of IFRS. Because of China’s unconventional market structure, there were come notable differences in accounting procedures from IFRS policy. A majority of China’s market is involved in State intervention, and China doesn’t allow companies to disclose whom and how much they are involved. This causes problems for providing transparent financial statements, leading to a difference between IFRS and ASBE.

Another accounting issue that affects China is fair value accounting. The majority of China’s market is manufacturing, which requires mass amounts of property, plant, and equipment. It is difficult to measure the value of these items when comparing values in the market place. It is even more difficult to do in...
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