Adopting Ifrs
Same as other developing countries, there is no doubt that China has to adopt IFRS. However, it is not easy for such a centralized communist country to fully obtain the standards. This case study is going to explain the difficulties of obtain the IFRS, and the major reasons of adopting IFRS also will be discussed.
According to Ramanna and Sletten (2010), more powerful countries are less likely to harmonized IFRS, due to powerful countries’ unwillingness to forgo their standard-setting power to an international body, such as the IASB. Moreover, depends on different culture backgrounds, political and economic systems, there are too many hurdles for the big country to fully adopt the standard. For example, according to the Chinese Constitution, Land ownership is divided into two categories: state-owned land (or state land) and collectively owned land, in another word, the land or property cannot be recognized as a business asset, as it all belongs to the government. All the corporate entities or individuals only has the right to possess, use, benefit from and dispose of land. This land legislation is totally conflict with IAS40, as it being clearly stated”the investment property shall be recognized as an asset”. Not only hard to identify the land value, such conflict also exists on other sectors, for instance, the retirement benefit system is different from the post-employment benefit plan, which is listed in IAS 19.
Even there are too many difficulties; to adopting IFRS is still a necessary step. One of the reasons for this is it improves the information disclosure, which helps to clean the financial market and enhance the sustainability of the economic environment. Moreover, once the report standard being harmonized, more and more foreign investors will be attracted, as these investors require more reliable financial reports to make right decisions. Not only for attracting the oversea funds, harmonizing the IFRS also allows Chinese entities list on overseas
According to Ramanna and Sletten (2010), more powerful countries are less likely to harmonized IFRS, due to powerful countries’ unwillingness to forgo their standard-setting power to an international body, such as the IASB. Moreover, depends on different culture backgrounds, political and economic systems, there are too many hurdles for the big country to fully adopt the standard. For example, according to the Chinese Constitution, Land ownership is divided into two categories: state-owned land (or state land) and collectively owned land, in another word, the land or property cannot be recognized as a business asset, as it all belongs to the government. All the corporate entities or individuals only has the right to possess, use, benefit from and dispose of land. This land legislation is totally conflict with IAS40, as it being clearly stated”the investment property shall be recognized as an asset”. Not only hard to identify the land value, such conflict also exists on other sectors, for instance, the retirement benefit system is different from the post-employment benefit plan, which is listed in IAS 19.
Even there are too many difficulties; to adopting IFRS is still a necessary step. One of the reasons for this is it improves the information disclosure, which helps to clean the financial market and enhance the sustainability of the economic environment. Moreover, once the report standard being harmonized, more and more foreign investors will be attracted, as these investors require more reliable financial reports to make right decisions. Not only for attracting the oversea funds, harmonizing the IFRS also allows Chinese entities list on overseas
References: New Zealand Institute of Chartered Accountants (2012 or 2011), New Zealand Equivalents to International Financial Reporting Standards, Student edition: volumes 1 and 2. Ramanna, K., Sletten, E. (2010). Network Effects in Countries: Adoption of IFRS. Harvard Business School, Working Paper, 10-092. Tang, Y.W. (2000). Bumpy Road Leading to Internationalization: A Review of Accounting Development in China. Accounting Horizons, Vol.14, No.1. Accountancy Age. (2006, February 17). China to adopt IFRS. Retrieved from http://www.accountancyage.com/aa/news/1775363/china-adopt-ifrs