Name: Si Chen
In the 21st century, economic globalization has become an investible trend. With the rapid growth of economic globalization and the growth of international capital markets, international accounting convergence has become an irreversibly realistic issue for countries worldwide. Thus, international accounting convergence has become the focus of the theoretical and practical issues. At the same time, the development has surged in China. Due to the fact that China adopted IFRS as references in standard-setting, making an objective assessment of the accounting convergence effect if important to the development of accounting theory and practice. This essay analyses the process of Chinese accounting standard and the possible factors influencing the international convergence effect in China.
Key words: GAAP China impact IFRS
In the late 1980s, the philosophy of the Chinese economy underwent a revolutionay shift as the system changed from a socialist-planned economy to a socialist-market economy(Graham & Li, 1997). This economic reform was designed to modernize China and integrate it more fully with the international market(Hilmy, 1999; Winkle, Huss, & Zhu, 1994). After the government organized stock exchanges in Shanghai and Shenzhen in 1991, the firms issuing A-share are required to obey Chinese GAAP. Meanwhile, the international accounting standards (IFRS) in the world had rapidly promoted, and increasingly close to make it become one of the world's primary standard which most countries are applying. The essay analyses the ‘Chinese GAAP and IFRS: an analysis of the convergence process’ which is written by Songlan Peng and Joyce van der Laan Smith. It is crucial to investors because the impact that IFRS influenced the level of financial reporting comparability.
2. The development of Chinese GAAP
Nowadays, a high-quality accounting information played a vital role as it can help both freign and domestic inestors to evaluate investments and increase the confidence about the future of the company. The Chinese government decided to organize these issues and developed a set of accounting standards. China accounting standards committee (CASC) and IASB actively cooperated to achieve convergence of accounting standards.
In February 2006, CASC has worked out a set of new accounting standards and related guidelines which based on IFRS. The main content is roughly the same with IFRS. Then, the new accounting standards began to apply to merge and separate financial statements in the listed company since 2007. This large-scale inform aimed to improve the Chinese capital market economy, and strive to the convergence of international accounting standards. Meanwhile, they improve the accounting information transparency and comparability in order to attract more investment from other countries. In 1998, the government issued the new accounting regulation for listed companies, in order to eliminate some problems between Chinese GAAP and IFRS, such as the value assets. Chinese GAAP require the adhering historical cost strictly, and government has fixed the depreciation rates for capital assets and bad debt allowances for receivables (0.3%-0.5%) regardless the type of the business. Since 1999, all Chinese companies are required to adopt the 1998 regulations. In 2001, there was the system which called accounting regulations for business enterprise, it suited to all Chinese listed companies, foreign investment firms and state owned enterprises. Furthermore, Chinese accounting system generally covered all types...