TRANSITION TO IFRSs IN CHINA:impact on companies' reporting performance.

Abstract

China is one of the most emerging economies in the world and thanks to the globalization of the economy, it has contact and deals business transactions with countries from all over the world. From an accounting point of view, accounting professionals and investors, in order to have economic transactions with China, need to have financial information that is clear and understandable, in other words they need to use the same accounting language. To have this kind of language, accounting professionals from all over the world have worked hardly over the decades to develop a worldwide common accounting language, the so-called International Financial Reporting Standards (IFRSs). The main topic of this study, then, is IAS/IFRS and how it has been implemented in China from accounting practices perspective. In order to take part into the economic globalization, convergence with IAS/IFRS it seems to be the right solution for China. In fact, starting from 1st January 2007 all listed companies are required to follow the New PRC GAAP, which are substantially converged with IAS/IFRS. However, there are still some differences between IFRSs and the New PRC GAAP and also harmonization of accounting standards does not always means harmonization of accounting practices. The scope of this study is to evaluate the extent to which Chinese Accounting Standards are fully converged or partially converged, with International Accounting Standards and also the impact and changes that were caused by this adoption on companies’ financial reporting. First of all, this study gives a picture of the institutional framework regarding Chinese accounting and the legislation that have been implemented during the process of harmonization with International Financial Reporting Standards. Secondly, in order to see if the highly convergence between the New Chinese GAAP and IAS/IFRS has improved or not the earning gap between Chinese Standards and IAS/IFRS, a sample of Chinese companies’ financial statements has been analyzed taking into consideration the period between 2004 and 2016. In order to answer to this question, global index and partial adjustment index have been applied to quantify the impact of the implementation of the New PRC GAAP. Furthermore, a ratio analysis has been applied to analyse the performance of Chinese companies under both standards.