• China’s rapid economic growth in the past two decades has amazed the rest of the world. • With China’s accession to the WTO, business activities with and within China will further expand. • China fully understands that a sound financial reporting system plays a key role in the process of economic development.
• The Chinese Ministry of Finance (MoF), who has the responsibility for regulating accounting matters in China, has set itself the objectives of fostering investors’ confidence in financial information, increase transparency of financial reporting, and harmonize with International Financial Reporting Standards (IFRS), so as to reduce the costs of raising capital by enterprises and alleviate the risk of financial crisis. 2. History Of Development
• The old accounting and regulations were designed to meet the needs of a planned economy, and therefore focused on whether the production goals of state-owned enterprises and their financial and costs plans were being met. • Accordingly, the objectives of accounting and performance measurement some twenty years ago were significantly different from the financial reporting objectives in a modern market oriented economy. • Significant accounting reforms were undertaken in the past two decades due to several factors such as: ?
Since China opened its door to foreign investments in 1979, the rapid growth of its economy, international trade and securities markets has shaped new objectives for financial reporting. ? State-owned enterprises now look a lot like profit-oriented businesses, and managers and other users need reliable and relevant financial information on which to base decisions about the efficient allocation of capital. ? At the same time, china has reached out to the international community to form joint ventures and gain greater access to the latest technologies and the world’s capital markets.
• In the 1980s, the MoF issued the first set of accounting regulation, which was formulated by reference to international accounting practice, for joint ventures in China. • In 1992, due to rapid development of the Chinese securities market, the accounting System for Experimental Joint Stock Limited Enterprises was promulgated by the MoF in order to standardised accounting practice and disclosures by listed companies.
This System was subsequently replaced by the Accounting System for Joint Stock Limited Enterprises (JSLE) in 1998. • The 1992 regulation moved away from the traditional fund-based Soviet accounting model and incorporated many common Western accounting practices. • In the same year, the MoF promulgated the Accounting Regulations for Foreign Investment Enterprises (FIE), the Accounting Regulations for Share Enterprises. • In 1993 the Basic Accounting Standard for Business Enterprises came into force.
It imposes some basic rules (e. g. that double entry bookkeeping must be used, that a cash or funds statement must be included in the financial statements, and that consolidated financial statements must be provided where appropriate); set out a conceptual framework of China accounting and make some detailed rules of financial reporting. • The conceptual framework introduced on a broader scope new accounting concepts and essential elements of financial statements that were in many respects based on international practices.
• The conceptual framework aspects of the regulation are reasonably close to US and IASC precedents. • However, these pronouncements were still found to have essential differences with international practice such as limited disclosure of financial information for the users to understand the results and financial position of the reporting enterprise. • Another difference is that the regulation does not specifically identify the primary user or purpose of financial statements.
Instead, a hierarchy of users includes the government, banks, the public and an enterprise’s own management. • This is very different from the US or IASB which emphasis on financial decision making by outside investors. • In addition, the ASBE is based on historical cost without the revaluation allowed in IASB or UK rules or the increasing use of fair value in IASB/US/UK rules. • Furthermore, ‘substance over form’ is not established as a principle in China.