Development of Accounting Systems in China

Development of explanation bodys in main earthly concern chinaware abstractThis report put the be victimization in China into perspective. eviscerate the history and changes in the story environment of China during the upstart stinting reforms by using the Greys (1988) history pass judgment to analyzing the culture impact on reputationing trunks teaching in China, and then, illustrate the institutional and environmental factors which dictated Chinas report placement do changes, the reasons of those changes and then describes the major problem in Chinas report training as surface as to point out(p) whether would be changes in the incoming.IntroductionThis report is aim to describe the development of chronicle administration in China, including the history of Chinas news report except Hong Kong, the unmatchable demesne, two governances policy whollyowed Hong Kong remain its trade-led capitalist remains. Then, it would describe the conventional map of method of be and the factors that findd Chinas accounting development as healthy as what the changes it has do what the major problems that China has face in developing the accounting dust. Then, it would dispute whether China would bear further changes of accounting dust in the future in my opinion. There has a conclusion in the end.Country composeChina had more than 1.34 billion population at the end of 2010. subject field Bureau of Statistics (NBS) announced Chinas GDP reaching 39.79 one thousand thousand yuan (approximately 6.04 trillion US dollars) over the course of 2010. (Du Xiaodan, 2011 Paul Pennay, 2011)Brief history ofaccounting in ChinaAccording to Zhang Guohua (2005), Chinas parsimony has undergone three periods of change since 1949 1949- 1978 a socialist, centrall(a)y controlled, planned economy. 1979- 1992 socialist commodity economy. 1992- present socialist market economy. Chinas accounting system has changed with the economy, almost like the period of t he Chinas economy. Development of accounting systems passel broadly be divided into the four stages (more detailed learning of Chinas accounting history rump be found in concomitant 1.)1949-1978 was the primary stage which the consistent accounting system and the 1978-1992, Chinas accounting system has during the conversion and the construction. Then, from 1992 to 1997, the construction of a clean accounting system has issued. The ordinal period is from 1997 to present. The ASC was set up in October 1998 by the Ministry of Finance to handle the development of a complete set of Chinese GAAP. In fellowship to join in the WTO, Chinas accounting standards made virtually change to juxtaposed to IFRS/IASs. The new Chinese score prototypes were adopted by all listed companies from 1 January 2007. Chinese news report Standards will continue to be updated in margin with IFRS developments. (Gray et al, 1995 Wang Baozhong et al, 2009 Zhang Guohua, 2005 The Institute of lea se countants of Scotland, 2010)Traditional substance abuse in ChinaThe underlying function of fiscal accounting is to accounting and monitoring. With the founding of the PRC in 1949, all re roots of production in the country came under take self-possession. story was primarily used for establishing information and account system for the implementation of matter economic policies and resource allocation in the planned economy. (InterChina, 2009) The objectives of fiscal reporting system have been give tongue to to serves one user primarily, the establishment, and then it is stated very broadly to strengthen accounting work of share attempt, to harbor the legitimate interest of investors and creditors (Ministry of Finance, 1992).The change in industry and ownership precise accounting system is due to the take in of macroeconomic planning take aim a uniform system. ( zestfulness, Qingliang, 2000) During the developing of accounting system, there are a crook of users make s use of accounting in varied purpose. Such as Shareholders use accounts to examine the health of business, and the dividends that they can expect to make. The bank whitethorn use the account to see how much loan they would return for the company, and administration would see the how much tax the company require to pay. The main use for accounting is to comply with legal and other requirements, to result information for stakeholders roughly financial performance and viability, to fork out managers with information for decision making and to provide a structure to business activity based on the heedful processing of numerical data. (The Times carbon, n.d)The cultural factor that influenced its developmentThe development of accounting was influenced by some(prenominal)(prenominal) cultural and environmental factors. They shape the accounting system in China. As Merino (cited in Carnegie and Napier, 2002) mentioned, All source material must be viewed as a reflection of the culture. The transition from a communist economy to a capitalist market economy can summarize as contri only whened by the factors as politic, culture, as well as the reform of social and economic or regional and world(prenominal) integration. Before economic reform, Chinas communist culture (See adjunct 2) has strongly influence all the means of accounting control, whether accounting plans, balance sheets, and income statements or, in a wider sense, audit techniques. (Cigdem Solas and Sinan Ayhan, 2008) all the surpluses were owned by the state. A table (See appendix 3) summarizes the information on the difference between capitalist and communist systems, and issues brocaded for examination regarding their reflection in accounting. The transitions of the culture and economy reform were both influence the accounting system in China. For sample, the concept of profit is nonsensical under communist culture due to the panned economy which the surplus goes to government. In capitali sm culture, the economic entity would need to have a certain theatrical role of boundary the profit is one of its results. Particular rules for payment of the various parties knotted would also be required, and monetary assessments of economic flows registered would have to be at l eastmost partly based on market mechanisms. Its status as a measurement of a single entitys performance presumes that there is a capacity for free enterprise do not existing in communist economic structures. Greys (1988) clay sculpture derived accounting values from studies of societal value dimensions by Hofstede (1984), and Greys model has been used to analyse the cultural impact on accounting development in China.Professionalism V StatutoryChinas accounting system is strongly controlled by state rather than overlord. The state closely controlled all enterprises by centralized plans. The profession is also silent relatively new, blue and powerless and it is currently occupied with the problems inv olved in meeting the new audit requirements. And it is unlikely to give up this power to a sea captain body so far. (Roberts, Weetman and Gordon, 2008) This is mainly because the strong power duration in China. In China, power is unquestioned, no matter it is right or wrong, the accountants in China cannot rely on their professional view.Uniformity V flexiblenessDue to the limited circumstances, China has a dual approach which carry a uniform accounting system in the invoice System for Business Enterprises (ASBE) while also developing accounting standards based on IFRS. Enterprises have no judgment at all on how to account for particular transactions or events according to the uniform system. (Roberts, Weetman and Gordon, 2008) It is still as the same as the statutory in China, the accountants has been regulated by the uniform accounting regulation, they have to do as the regulation told to.Conservatism V OptimismThe accounting system in China is conservatism rather than optim ism. The account statement System illustrate that an enterprise should fulfill the requirements of the prudence concept. Including, an enterprise should not overstate assets or revenue, or understate liabilities or expenses. It should not provide for any hidden reserve. (Roberts, Weetman and Gordon, 2008) which means Chinas accounting system has high direct of uncertainly avoidance. Chinese government likes to plan everything in advance just the five years plan, they do not want to see whatsoeverthing make pass unexpected due to the complex situation.Secrecy V TransparencyChinas accounting system has highly secrecy due to the large power distance and strong uncertain avoidance. The collectivist culture of China require the enterprise offer their information to the society but within a clutch of narrative disclosure which stated in ASBE 2001. (Roberts, Weetman and Gordon, 2008) only related pack can see the accounting information such as the managers, shareholders and the gover nment officers. This feature is due to Chinas prudent culture, it is different as the western country but it is totally consistent with Chinas situation.Problems for using the Greys modelThere have some(prenominal) problems by using either Hofsteade model or Greys model to analyzing Chinas situation. Those models has been stated many years ago, in addition, China is rapid development in every aspects those years, therefore, the model may not be 100% appropriate with the situation nowadays. Another problem is China is really king-size there has huge gap between west area and east area no matter in economy or culture.institutional and Environmental factorsThere are several environmental factors which influence accounting system in China.Economic and enterprise reforms have influence the financial reports by change of the contents, format and uses. Enterprises in China are no longer relying on fund appropriation instead of independence in their operational and financing activities. B anking and financing system has restructured, therefore, the role of the state as a source of funds has been reduced. (Tang, Qingliang, 2000) pushmore, various forms of business combinations with joint ownership have emerged (Tang et al, 1992). The rigid, fund-orientated and industry/ownership specific financial reporting system and practices are no longer well-matched the changing business environment. As a result, a universal and user-oriented financial reporting system is necessary to meets the needs of the economic reform. Due to the economic factors, the Objectives of Financial Reporting has made some change as well as the Industry and Ownership particular proposition Accounting System.Furthermore, abroad investment started to influence Chinas accounting system since the open-doors policy. The change magnitude of foreign direct investment and international business transaction impelled China change its accounting system close to international accounting and report standard. (Tang, Qingliang, 2000)The legal factors have been influenced by other factors. The government system is one of the legal factors. The new accounting regulation system (See cecal appendage 3) is being developed towards a legal one. The National Peoples Congress issued the first tier accounting justness in 1985 and revised in 1993 and 1999. It is the elementary law of accounting in China as well as the basis of Chinas accounting work and other related accounting regulations. The State Council and Ministry of Finance formulated second tier- the executive regulations which form conceptual exemplar and general principles of accounting. The third tier authorized by the PRC Accounting rectitude and formulated by the Ministry of Finance. (Zhang Guohua, 2005) The legal framework for Chinas accounting system and reporting standards have changed step by step to fulfill the need of economy development.Another driving force for the accounting change is the development of capital market.In 1990 and 1991, the Shanghai shop counterchange and Shenzhen Stock Exchange were established. The development of capital market has influenced Chinese accounting change toward to a capital market-oriented system. Therefore, the structure, content, format, and disclosure of financial information have been significantly influenced by the needs of the capital market. (Tang, Qingliang, 2000)Problems occurred in developmentThere also appeared some problem during the Chinas accounting systems development and transition into international accounting standard. rootage is that Chinese accounting system and IAS requiring different practices for example, inventory must be valued at historical costs under Chinese GAAP, but at the lower of cost and market (LOCAM) under IAS. Another example is accounting for long-term investment. Chinese GAAP offers companies a free selection between cost and equity regularitys if their investments in shares do not expire 50 percent. But in other words, diffe rences between Chinas accounting system and IAS can be reduced by changing accounting standards. (Charles J. P Chen, Ferdinand A. Gui and Xijia Su, 1999) Second, to implementation of IAS requires professional judgment from management as well as auditors. Professional independence and implement of standards have been identified as the two critical issues in international auditing. (Stamp and Moonitz, 1982) The severe shortage of qualified accountants and auditors in China delay the development of professional auditing (Winkle et al. 1994 Graham 1996)Further changesThe development of Chinas accounting system needs to fit Chinas special circumstance. It is impracticable to expect independent/professional auditing to be achievable in China in the future. This implies that the proposed accounting standards will have to operate without independent/professional auditing. It is likely that the flexibility in the detailed accounting standards will provide opportunities for managers to eng age in aggressive earnings management, reducing, even eliminating the probability of exhibit a true and fair view. Therefore, the lack of independent/professional auditing can neutralize the objective of prudence and turn the flexibility into a land of opportunities for earnings exploitation. (Bing Xiang, 1998) In my opinion, there has a trend, which the Chinas accounting system would slightly change towards to the international accounting system in the future, but would neer be exactly the same with the international accounting system because of Chinas special circumstance like one-party policy, different situation in different area, huge power distance and not so easy to managing the full-size land of China.ConclusionIn conclusion, China has undergone profound changes in recent years, not only the economic system but also the accounting standards. China has moved from a system of public ownership of all enterprises to a mixed system with increasing private ownership of both smal l and large companies. There have many factors such as cultural and institutional factors which led to those changes as well as some problem which hold the change back, but Chinas accounting system would still change towards to the IAS due to the requirement of economic development.ReferencesBing, X., (1998) Institutional Factors Influencing Chinas Accounting Reforms and Standards. Accounting Horizons. 12(2) pp 105-119.Carnegie, G.D. and Napier, C.J., (2002) Exploring Comparative internationalist Accounting business relationship, Accounting, Auditing Accountability Journal, 15(5). pp 689-718.Chen, J. P., Gui, A.F., and Su, X., (1999) A Comparison of inform Earnings Under Chinese GAAP vs. IAS Evidence from the Shanghai Stock Exchange. Accounting Horizons. 13(2) pp 91-111.Chiapello, E., and Ding,Y., (2005) Searching for The Accounting Features of chapiterism An Illustration with Economic pitch contour Process in China, SASE, Budapest.Chow, L.M., Chau, G.K. and Gray, S.J. 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Available from http//www.thetimes100.co.uk/theory/theoryaccounting-functions111.php Assessed 2/3/2011Wang, B.Z., Huang, J.Y., Wang, B.Q., (2009) Change of Accoun ting System Review. Communication of Finance and Accounting NG. jazz6.Winkle, G., Huss, H., and Chen, X., (1994). Accounting standards in the Peoples Republic of China Responding to economic reforms. Accounting Horizons. Issue 8. pp 48-57.Zhang, G., (2005) Environmental factors in Chinas financial accounting since 1949. Netherland Erasmus University Rotterdam.Appendix 1History of accounting systems development in ChinaChinas accounting history can be traced back 2000 years ago. The word accounting first appeared in Western Zhou Dynasty 11th century BC to 770 BC. During the Tang Dynasty (AD 618-907), Account book appeared for recording the annual fiscal revenues. The basic traditional Chinese accounting theory such as the scientific bookkeeping method and the four pillars accounts was created in Song Dynasty (AD 960-1279). A new method called Long Men Zhang which is similar to the double-entry bookkeeping method has created in Ming Dynasty (AD1369-1644). Single-entry bookkeeping ha s been used in prior to 1911. (Zhang Guohua, 2005)Since 1949, Development of accounting systems can generally be divided into the four stagesFirst stage is from 1949 to 1978 1949-1952 a corporate accounting system of affiliated enterprises was developed by the central government. 1958-1959, the accounting system has been severely damaged by the scholasticism thinking, some bulk claimed to simplify the accounting system. 1960 to 1966, due to economic development, people realized the sizeableness of accounting. Critical theorists illustrated the error approach of simplify the accounting system, then, the accounting system design work has received attention. Furthermore, the industry-specific regulation has been issued. (Gray et al, 1995 Wang Baozhong et al, 2009 Zhang Guohua, 2005)Second stage is from 1978 to 1992 Chinas accounting has undergone drastic changes due to the opening-up and beginning of reform. 1979-1922, Enterprises started to issue equity shares in 1984. The number of Sino-foreign joint venture has increased Ministry of Finance has issued the Laws on Sino- foreign common Venture to solve the problem of difficult of foreign staff in accounting and use the accounting information. These included a joint venture income tax law and laws on contracts and foreign exchange. Accounting Regulations for Sino- conflicting Joint Ventures and Charts of Account and Accounting Statements for Industrial Sino-Foreign Joint Ventures has issued in 1985 which is the first accounting system reference to international conventions to satisfy the new accounting system in China. (Gray et al, 1995 Wang Baozhong et al, 2009 Zhang Guohua, 2005)Third stage is from 1992 to 1997 Ministry of Finance and the National Committee of Economic expression Reform jointly promulgated Accounting Regulations for Share Enterprises in 1992. Furthermore, Accounting System for Business Enterprises (ASBE) issued in November 1992. The ASBE was a major attempt both to unify the accountin g systems used by different industries and to move financial accounting towards international accounting practices. Because of the development of foreign exchange markets, these regulations which made in 1985 were replaced by Accounting Regulations for Enterprises with Foreign Investments and Charts of Accounts and Accounting Statements for Industrial Enterprises with Foreign Investments in 1993. (Gray et al, 1995 Wang Baozhong et al, 2009 Zhang Guohua, 2005)The fourth stage is start from 1997 to present the Accounting Standard Committee issued to establishing a complete set of accounting standard. The Accounting Law of the PRC which revised in 2000 is the highest level of authority which replaced the pervious law of 1992. (Gray et al, 1995 Wang Baozhong et al, 2009 Zhang Guohua, 2005)