On the Construction of China’s Accounting Standard System with
International Convergence in Accounting Standards
Changchun University of Science and Technology, Changchun 130022, China
No. 65043 Section of PLA
With the international convergence of accounting standards becoming an irresistible trend, China’s new business accounting standards have reached substantive convergence with International Financial Report Standards
(IFRS). However, due to some factors including economy, law and culture, there is still a narrow gap between china’s accounting standards and IFRS. In order to further keep up with IFRS, China should attach greater importance to learning from it to establish or implement its accounting standards.
Keywords: International convergence, International Financial Report Standards, Accounting standard system construction With the development of China’s economy and the improvement of its international status, more investors and business tycoons focus their attention on Chinese market which has the greatest potential in their eyes. It is a significant step towards the internationalization of Chinese accounting to accomplish the convergence of China’s accounting standards with IFRS. In spite of its remarkable progress in accounting reform through many years’ efforts, China is still far apart international convergence in accounting standards.
Convergence refers to integration, that is, using the same accounting method for the same economic transactions in different jurisdictions. In addition, convergence means narrowing differences, that is, some current differences will become the same after some time. However, convergence doesn’t mean sameness, copying, passive acceptation or completely discriminating a nation’s characteristics. Due to different nations’ social institutions, market systems, execution environment and legal environment of accounting standards, convergence will finally result in “seeking for major similarities and accepting minor differences”.
1. Reasons for the Differences between China’s Accounting Standards and IFRS
As a nation facing economic conversion, China has great differences with developed nations in economy, law, culture and some other aspects. Therefore, under the general background of convergence between China’s accounting standards and IFRS, there are still some differences between the two. The analysis on these differences is as follows:
1.1 Economic Environment
Economic environment is a major element influencing the international convergence of China’s accounting standards since China’s Socialist market economy based on public ownership is largely different from western countries’ economic patterns. Compared with developed countries’ mature market economy, China’s market economy still lies in the elementary period of its development, supervision and resources allocation, hence actively exploring how to establish accounting standards. For example, business combination laid down in the standards refers to the combination of businesses both under common control and different controls, but the former is not included in the international standards. It is because Chinese state-owned enterprises are under the universal control of SASAC with the economic system based on public ownership. Besides, its market of equities is not mature enough to achieve fair value. However, most business combinations involve those under common control.
1.2 Legal Environment
In China, accounting standards and systems are established and issued by the Ministry of Finance, hence having mandatory force. All enterprises are supposed to prepare and submit financial reports according to the universal accounting system, leaving little space for accounting policies and accountants’ professional judgment. For