Accounting System in China: An Overview on the Convergence to IAS/IFRS.

Abstract

This study is focused on the historical evolution of Chinese Accounting System. China, as every developing economy, has perceived the need to internationalise its own Accounting System to facilitate the entry on foreign market and to attract foreign investors. Chinese Government, from the open-door policy on, has undertaken several reforms in order to expand its own economy and to uniform the Chinese Accounting language to the developed countries. Meanwhile, the study of Chinese Accounting and the International Accounting researches that focus on China, were constantly increasing and attracting more and more foreign researches, in contrast of what happened before Deng Xiaoping rose to the power. The studies concerned this matter (Gray,1969); (Hofstede and Bond, 1988); (Bromwich and Wang, 1991);(Van Der Laam and Smith, 2010) agree upon the division of the History of Chinese Accounting System in six phases: Accounting System in the Traditional China’s period, the modern age and the use of western’s double entry bookkeeping, the adoption of Soviet’s model, the Maoism phase, the great open-door policy of Deng Xiaoping and the internationalization of Chinese Accounting System with following substantial convergence of Chinese Accounting standards with IFRS, recognized by IAS. Therefore, the starting point will be the traditional Chinese period and the first use of rudimental Accounting practices in the empire ages. In the following phase will be analysed the period of the last dynasty, that implied the end of the millennial empire, the birth of the Republic and the will to use Western Accounting system, that did not lead to expected outcomes, due to the rose to the power of Mao Zedong. The death of Mao Zedong in 1977 was the end of the Chinese socialist economy. In these years, plenty of Western Accounting scholars came to China and a lot of Chinese students went abroad to develop Accounting skills and to learn methodologies that they will put in practice some years later. A fact came to light, the inadequate and obsolete Accounting System of China, still based on Funds, could not face any more the rapid development of economy. In 1992, there where the issuance of Accounting system for experimental enterprises with shareholding system and later the issuance of Accounting standards for business enterprises and financial guidelines for business enterprises. The aim of Accounting standards was the introduction of a new Chinese conceptual framework, while the one of Financial Regulations was to introduce operating rules for the company’s management. Despite of good intentions, this objective has not been achieved, mainly because of the difficulty of gathering under a single unit, a previously very fragmented accounting system. The Chinese Ministry of Finance, aware of the existence of remaining differences and with the view to continue the internationalization of its economy, has continued to reform Accounting standards for business enterprises, proceeding to revisions in 1998 and 2001 and finally in 2006. The evolutionary stages of Accounting harmonisation in China have not been finished with the introduction of the ASBEs 2007, since the MOF has maintained a constant degree of alignment of its principles with respect to the standards update proposed by the IASB, as established in 2010 in the "Roadmap for continuing convergence of ASBEs with IFRS". The EU-supplementary progress report on the equivalence of Chinese accounting standards with international Financial reporting standards, on 31 December 2010, stated that the main differences between the PRC GAAP (CAS) and the IFRS has been eliminated by the Chinese government, except for those that are related to Chinese characteristic economic, politic and cultural background.