The Establishment of New Accounting Standards System in China
Yan Wang
Department of Economic Management, Transport Management Institute, Ministry of Transport of the
People’s Republic of China, 101601, China
(wangyanyan1977@126.com)
Abstract - On February 15th, 2006, a statement was
made at a ceremony in Beijing, the People’s Republic of
China, where the Chinese Ministry of Finance announced
the adoption of new accounting standards system. It ushers
a new era in Chinese accounting and shows the resolution of
convergence towards International Financial Reporting
Standards in China. Five aspects about the new accounting
standards system are analyzed in this paper.
Keywords - Accounting standards, convergence, market
economy
I. INTRODUCTION
Chinese Ministry of Finance brought out 39 items of
new accounting standards for business enterprises on
February 15th 2006, and made a statement to affirm
Chinese
commitment
to
convergence
towards
International Financial Reporting Standards (IFRSs) at a
ceremony in Beijing[1]. On January 1st, 2007, the new
accounting standards were adopted in Chinese listed
companies. This symbolizes the official establishment of
new accounting standards system in China that adapts to
the current market economy development of China[2].
II. CONTENT OF THE NEW ACCOUNTING
STANDARDS SYSTEM
In 1993, Accounting Standards for Business
Enterprises: Basic Standard was promulgated in China.
It was the beginning of the construction of Chinese
accounting standards[3]. Four years later, the first specific
standard — Accounting Standards for Business
Enterprises: Disclosure of Related Party Relationships
and Transactions was brought out. From then on, 15
items of specific standards appeared in succession. Those
17 standards formed the former accounting standards
system which laid particular stress on enterprises in
industry and commerce. The new accounting standards
were increased to 39 items and extended to the industries
of agriculture, finance and insurance. New accounting
standards were added such as Accounting Standards for
Business Enterprises: Biological Assets, Accounting
Standards for Business Enterprises: Transference of
Financial Assets.
They fill up the blankness of
accounting treatments in current market economy in
China. On October, 30th, 2006, the practical manual of
the standards was released. The basic standard, the
specific standards and the manual are integrated into
Chinese accounting standards system.
III. CONSTRUCTION MOTIVATION OF THE NEW
ACCOUNTING STANDARDS SYSTEM
As “a language of business”[4], accounting plays an
important role in the economic development. Therefore,
to satisfy the request of the economic development in
China, the new accounting standards are constructed. In
the 1980’s, with the implementation of opening policy,
Accounting System for Chinese-foreign Joint Venture was
promulgated in China. It facilitated the absorption of
foreign capital in China and prologued to Chinese
accounting reform. In the 1990’s, Chinese market
economy was formed initially and series of accounting
regulations were needed to reflect and order the economic
activities. Consequently, a large-scale movement of
accounting reform began in China and Accounting
Standards for Business Enterprises, Financial General
Rules for Business Enterprises, Accounting System for
Business Enterprises and Financial System for Business
Enterprises were promulgated. From the end of 1990’s to
the earlier in the 2000’s, China made a great effort to join
the World Trade Organization [5]. One of the measures is
to improve the consistent degree between the Chinese
accounting regulations with the international ones. China
started to execute new Accounting System for Business
Enterprises from January 1st, 2001, which was more
concrete, practical and suitable to the economic activities
under Chinese economic conditions at that time besides
its more consistency with international regulations.
Promulgated in 2006, the new accounting standards
system is to keep up with Chinese rapid economic
development and to connect with international economy
more easily. In a word, all China has done with
accounting is to accelerate economic development and
perfect the order of Chinese market economy.
IV. CONSTRUCTION PROCESS OF THE NEW
ACCOUNTING STANDARDS SYSTEM
Constructing accounting standards for business
enterprises is not only highly technical but also strong
influential on entire society [6]. Ministry of Finance
invited many committee members of Chinese Accounting
Standard Broad to take charge of more than 40 research
projects on accounting standards separately which
established the theoretical, technical and political
foundations of the new accounting standards system. At
the beginning of 2005, Ministry of Finance requested that
members in charge of the research projects should know
very well the IFRSs, the related standards of United States
and the problems existing in current accounting practice
in China and write out research reports as results. The
request cleared the emphasis of the standards.
The construction of the new accounting standards
system is based on a widespread opinion solicitation. On
the basis of opinion solicitation of many committee
members of Chinese Accounting Standard Broad,
Ministry of Finance invited many accountants in
international accounting firms and large-scale listed
companies to discuss the standards and also solicited the
opinions of the related ministries such as China’s National
Audit Office, State-owned Assets Supervision and
Administration Commission of the State Council, China
Securities Regulatory Commission, etc.. At the same time,
each questionnaire manuscript was issued through
network, newspaper, magazines etc. to collect the ideas of
the masses. The reclaimed opinions were treated earnestly
as important basis of revision, which guaranteed the
quality of the new standards.
Investigations, tests and studies are also important in
constructing the new standards [7]. Ministry of Finance
chose partial representative listed companies and more
than 50 enterprises in large or middle scale to give
simulative tests. Thus, the probable problems may appear
in the tests. Furthermore, the countermeasures can be
taken, and the consequence can be expected. These
improved the feasibility of the new standards greatly.
In addition, the construction of Chinese accounting
standards and auditing standards are synchronized [8].
They are related closely and are promoted each other.
Therefore, in the construction process of the accounting
standards and auditing standards, whenever the content
that influences both of them involved, the bilateral draft
personnel negotiated and coordinated with each other,
which guaranteed the communality, solemnity, authority
of the standards’ content and effective implementation of
the standards.
V. PRINCIPLES HELD IN CONSTRUCTING NEW
ACCOUNTING STANDARDS SYSTEM
The first principle is that new accounting standards
should adapt to Chinese current national situation.
Firstly, Chinese accounting standards must be subjected
to legal circumstances of China. Secondly, the provisions
of the standards should conform to the development level
of Chinese economy. And at last, the coordination of the
standards with Chinese culture is especially emphasized
this time. The content should be easily understood by the
readers. And the personnel having no related knowledge
can also operate it well according to the standards.
Because some provisions of the old standards are
translated from overseas, they are obscurely difficult to
understand and do not conform to Chinese custom. While
in the formulation of the standards, Chinese language
teachers were even invited to check whether the
expression was clear, fluent and conformable to Chinese
custom. The criterion was that the Chinese language
teachers who had no accounting profession knowledge
could understand the standards.
The second principle is to use the international
regulations for reference [9]. There are three stages in
Chinese accounting reform. The first stage — in the
1980’s, China promulgated Accounting Law, and began to
manage accounting work and accountants by the law. It
was a great change of conviction from management by
persons to management by law in accounting. Chinese
accounting was linked line with international regulations
from then on. In the second stage— from the 1990’s to
the earlier in the 2000’s, a series of specific accounting
systems and accounting standards were built up.
Consequently, the frame of Chinese accounting
regulations was set up by reference to the international
regulations. Chinese accounting was coordinated with
international accounting regulations. It is in the third stage
at present, Chinese accounting is converging towards
IFRSs. Convergence towards IFRSs is the direction of
Chinese accounting’s development and it is a process
advancing step by step.
When applied to the Chinese specific economic
activities, the international standards should be referred to
but not be copied [10].
VI. CONVICTIONS PERSISTED IN THE NEW
ACCOUNTING STANDARDS SYSTEM
The first conviction is that more attention should be
paid to the financial accounting reports. In the standards
system, there are 8 items involving financial accounting
reports. The status and function of financial accounting
reports in the standards system are especially emphasized
and the notes of the reports are giving rise to more
attention in the new standards system.
The second conviction is that the revenue-expense
view should be changed to the asset-liability view. The
enterprises should reduce the useless property and avoid
pursuing the profits one-sidedly. The key to evaluate the
enterprise’s achievement is to judge whether its net assets
increase but not to judge from the amount of profit.
The third conviction is that the relationship between
the historical cost and fair market value should be treated
well. The historical cost should be used primarily, and the
fair market value should be used under suitable
prerequisites in order to avoid the false increase of profits.
REFERENCES
[1] David Tweedie, Chairman, International Accounting
Standards Board, Statement of Chinese Accounting,
February 15, 2006.
[2] http://www.examda.com, The Issues about The
Establishment of Chinese New Accounting Standards (in
Chinese), October 29, 2006
[3] Jiwei Lou, Vice Minister Of Ministry Of Finance Of China,
The Valuable Practice and New Breakthrough of The
Construction of Chinese Accounting Standards System for
Business Enterprises (in Chinese), February 15, 2006
[4] Yongbo Han, Accounting English, Foreign Language
Teaching and Research Press, China, August, 2007
[5] Qixiu Zhang, Accounting English, ShangHai University of
Finance& Economics Press, China, February, 2006
[6] Walter T. Harrison, Charles T. Horngren, Bill Thomas,
Financial Accounting (8th Edition), Prentice Hall,
September, 2009
[7] Robert Hurt, Accounting Information Systems, McGrawHill/Irwin, October, 2009
[8] Mr. Graham Ward, CBE, MA, FCA, President Of
International Federation of Accountants, Speech on the
Release Ceremony For Chinese Accounting Standards
System For Business Enterprises and Chinese Auditing
Standards System, February 15, 2006
[9] Frederick D. Choi, Gary K. Meek, International Accounting
(6th Edition), Prentice Hall, November, 2007
[10] Accounting School of Zhongnan University of Economics
and Law, Proceedings of 2008 Sino-Australia International
Conference on Accounting and Finance, Economic Science
Press, China, 2010