Comparison of China Accountancy with IAS
Comparison of China Accountancy
with International Accountancy Standards (IAS)
DIFFERENCE AND COORDINATION
Comparison of Chinese Accountancy with IAS
1. About China
1.1 China's economic Achievements
China's path-breaking initiatives begun over two decades ago are
leading to
a total transformation of the economy. Its impressive accomplishments
over
this period are capped by near double-digit growth and, as a
consequence,
the uplifting of hundreds of millions of people out of absolute
poverty.
China has, in fact, made the largest single contribution to global
poverty
reduction of any country in the last 20 years. The World Bank estimates
indicate that, while the number of poor people worldwide fell by 8
million
between 1987 and 1998, the number of poor outside China actually
increased
by 82 million. Beyond income, the last two decades of China's
market-oriented reforms, which dramatically improved the dynamism of
both
the rural and urban economies, also saw substantial improvements in
indicators of human development. Official estimates of the adult
illiteracy
rate fell by more than half, from 37 percent in 1978 to less than 17
percent
in 1999. Indicative of health indices, the infant mortality rate fell,
from
41 per 1,000 live births in 1978 to 30 in 1999.
1.2 The difficulty China faced
Nevertheless, substantial challenges remain. Over 200 million Chinese,
many
in remote and resource-poor areas in the western and interior regions,
still
live on less than US$1.00 a day, often without access to clean water,
arable
land, or adequate health and education services. China is also finding
it
more difficult to achieve economic gains, since it must deal with many
of
the most complex systemic issues (like financial sector and state
enterprise
reform) that will determine its long-term growth and prosperity.
Further,
while China's environmental program has had notable successes, for
example,
in reducing industrial air and water pollutant emissions and reversing
deforestation, much more needs to be done to remedy the serious
environmental toll that two decades of phenomenal growth took on the
rural
natural resource base and the urban environment. Finally, China's
growth has
been uneven, with widening regional income inequalities and the
emergence of
vulnerable urban groups. While increasing income disparities,
particularly
between rural and urban areas, often accompany development, factors
contributing to persistent inequalities create social strains and need
to be
addressed for equity reasons.
1.3 What China is doing now
China is pursuing policies to meet these challenges through its 10th
Five-year Plan (2001-2005), which aims in part at economic growth,
restructuring and reform by developing three Related areas. First, the
spread of market forces is being encouraged, especially through reforms
of
state enterprises, the financial system, agricultural output and labor
markets, and pricing of natural resources. Second, market development
is
being supported by building the legal, social, human, physical and
institutional infrastructure needed to spur private investment and
rapid
growth. Finally, and essential to its development agenda, China
continues to
go forward with broad-ranging initiatives for its integration with the
world
economy, building on its success in gaining WTO membership.
In parallel with its agenda for economic reform and growth, the Tenth
Plan
incorporates a Western Region Development strategy to assist the 12
western
and inland provinces where per capita income is less than half of that
of
the more developed coastal provinces, where illiteracy is higher, and
where
the largest proportion of China's very poor reside. This strategy began
with
stepped-up government investment, primarily in infrastructure,
throughout
the western region. The Government recognizes, however, that human
capital
development, environmental protection and an improved investment
climate(with flexible markets, basic physical infrastructure, and a
social
protection system)also need to be addressed by its western growth
strategy.
Since agriculture will continue to be the mainstay of the rural
economy,
agricultural research and technology development geared to the needs of
typically mountainous poor western areas are likewise viewed as
imperatives.
As indicated, environmental protection and sustainable development are
intrinsic to the Tenth Plan goals for both economic development and
poverty
reduction. In rural areas, it recognizes the inter-relation of poverty
and
environmental degradation, specifically severe soil erosion,
deforestation
and desertification. In urban areas, the Plan points out the need to
improve
the environment by reducing water and air pollution, the latter by
promotion
of clean coal energy sources and technologies.
1. Accountancy in China
1.1 History of Chinese accounting
1949-1960
At the time during this, the style of Chinese accountancy is just like
the
former Soviet Union, Russia, since the investor is only one ----the
Chinese
Government, the accounting formula is as below:
Fund coming in = Fund expenditure, which means no profit and even there
is
any surplus, it belonged to the government. At that period we use the
debit
and credit double entry bookkeeping technique as well as receiving and
paying double entry bookkeeping which is the transitional method of
Chinese
accounting. There were only one balance sheet and a receiving and
expenditure statement to be prepared during this time
1960-1978,
Because the leaders of China didn't be able to understand the debit and
credit double entry bookkeeping technique they did not know of the
meaning
of debit and credit the Financial Management of China practised a new
kind
of double entry bookkeeping technique which is called increasing and
deceasing debit and credit double entry bookkeeping technique. There
were
only one balance sheet and an income statement to be prepared during
this
time
1978-1993
This time, China carried on revolution and opening to the world, the
firms
fond that the foreign investors did not understand the increasing and
deceasing debit and credit double entry bookkeeping technique, and made
great misunderstanding between the foreign investors and the firms.
From
then on, we use the debit and credit double entry bookkeeping technique
one
again, but the other two methods were still used in some firms, such as
the
bank, the shops etc.
1993-1998
As China decide to set up the market economic and the opening police
more
widely practice, under the World's bank assistant, Chinese accountancy
has
changed a lot. The investor is more and more, not only the state is,
but
also the private person invertors, the formula of the accounting
equality is
as below:
Assets=liabilities +owner' equity
There were not only a balance sheet and an income statement, but also a
statement of changing financial position should be prepared during this
time.
1998-now
We have issued 18 detail accounting standards according to the
Accounting
Law and the basic accounting standards, further more, we will issue
total
about more than 30 standards. There were a balance sheet, an income
statement, and cash flow statement to be prepared from then on.
2.2 The Chinese accounting system
The detail accounting standards are: Inventories, Investments, Fixed
Assets,
Intangible Assets, Non?monetary Transactions, Leases, Borrowing Costs,
Debt
Restructuring, Revenue, Construction Contracts
Cash Flow Statements, Events Occurring After the Balance Sheet Date,
Changes
in Accounting Policies and Accounting Estimates, and Corrections of
Accounting Errors, Contingencies, Disclosure of Related Party
Relationships
and Transact, etc.
2.3 The organization of accountants in China
There are two kinds of accountants in China, one is CICPA, who are
auditors
outside the firms; and now there are about 130,000 CICPA in China,
among
them there are about 60,000 working in the Practice and there are more
than
4,300 accounting practices. The other is the financial accountants who
work
for the firms to supply useful preparation information. There are about
12,000,000 accountants in China. Corresponding, there are international
accounting standards (IAS) for auditing and the ACCA training has set
up in
China. But up to now, there is no international financial accountants
training in China.
3 The differences with IAS and how to coordinate
3.1 What the accountancy is for
Accountancy----just like a language between firms and government, the
bank,
the creditors and etc. It is the most important to use the same
language to
the different countries, and it makes people understand each other. For
example, the former President Bill Clinton of the United American's dog
and
cat, do you know about that? What happen if the dog and the cat are
live
together? Yes, they do fight, why? Because they have not the same
language.
Some scientists find out that the dog's language is quite different
from the
cat. When the dog totter his tail, he means very friendly, would you
please
to play with me? But what do think the cat? Maybe it means to the cat
is: Do
you want to fight? Let us do. Because so often they fight, at last, the
President had to apart form them. Now what is the accountancy? It is
just
something as a language. As global economic is unified more tighter
nowadays, the accountancy has become a business language by which the
firms
can communicate the government, shareholders, potential investors,
bankers,
employees, trade creditors in one country or in different countries.
3.2 The difference between Chinese accounting standards and IAS taking
Fixed Assets as an example Fixed assets (property, plant, and
equipment)
About fixed assets Chinese standards International standards
Identified Be held for use for rental Be held for use
Cost included Costs: value, value-added tax, import duties and other
related taxes, and any directly attributable expenditures for bringing
the
asset to working condition for its intended use, such as the cost of
site
preparation, delivery and handling costs, installation costs, and
professional fees. Costs, including the purchase price and duties paid.
However, general and administrative expenses as well as start up costs
are
excluded.
Basic for record History cost - depreciation- impairment History cost
- depreciation - impairmentFair value - depreciation - impairment
Non money exchange Carrying value of the asset surrendered,
Dissimilar items are recorded at the fair value of the asset(s)
received.
Similar items are recorded at the carrying amount of the asset(s) given
up.
Depreciation methods Straight-line method, the unit of production
method,
the double declining balance method and the sum of the digits method.
Straight-line, diminishing balance, and sum of the units method.
Impairment Only covers most assets which the firm owns. Most assets.
It also covers investments in subsidiaries, associates, and joint
ventures.
3.3 Why China does not use the IAS directly?
As stated above, accountancy is just as a kind of business language.
And
because this kind of language is affected by different background,
culture,
economic condition etc, we can use only one language. The reason why
China
does not use the IAS directly is:
(1) The Chinese economic market was set up on the basic of planning
economic
environment, and the government role has still very much influence the
market.
(2) State enterprises are the mainly firms in China
(3) The Chinese economic market has not wholly set up yet
(4) The assets revaluation system do not develop enough to estimate the
assets' fair value.
China has joined the WTO, more and more and more group enterprises as
well
as transnational corporations raise. To coordinate the different
countries'
accounting policies in different countries, to my opinion, every
countries
who are the members of WTO, should supply two kind of financial report
to
the investors, bank, creditors outside the firms. One of them should
be
prepared according to the international accounting standards and the
other
one maybe prepared according to their own accounting standards I do
think
that to develop IFA in China will help firms' information users to
understand the firms' financial position and their operation by the
same
language.
Mary Su Shuhuan May 2004
with International Accountancy Standards (IAS)
DIFFERENCE AND COORDINATION
Comparison of Chinese Accountancy with IAS
1. About China
1.1 China's economic Achievements
China's path-breaking initiatives begun over two decades ago are
leading to
a total transformation of the economy. Its impressive accomplishments
over
this period are capped by near double-digit growth and, as a
consequence,
the uplifting of hundreds of millions of people out of absolute
poverty.
China has, in fact, made the largest single contribution to global
poverty
reduction of any country in the last 20 years. The World Bank estimates
indicate that, while the number of poor people worldwide fell by 8
million
between 1987 and 1998, the number of poor outside China actually
increased
by 82 million. Beyond income, the last two decades of China's
market-oriented reforms, which dramatically improved the dynamism of
both
the rural and urban economies, also saw substantial improvements in
indicators of human development. Official estimates of the adult
illiteracy
rate fell by more than half, from 37 percent in 1978 to less than 17
percent
in 1999. Indicative of health indices, the infant mortality rate fell,
from
41 per 1,000 live births in 1978 to 30 in 1999.
1.2 The difficulty China faced
Nevertheless, substantial challenges remain. Over 200 million Chinese,
many
in remote and resource-poor areas in the western and interior regions,
still
live on less than US$1.00 a day, often without access to clean water,
arable
land, or adequate health and education services. China is also finding
it
more difficult to achieve economic gains, since it must deal with many
of
the most complex systemic issues (like financial sector and state
enterprise
reform) that will determine its long-term growth and prosperity.
Further,
while China's environmental program has had notable successes, for
example,
in reducing industrial air and water pollutant emissions and reversing
deforestation, much more needs to be done to remedy the serious
environmental toll that two decades of phenomenal growth took on the
rural
natural resource base and the urban environment. Finally, China's
growth has
been uneven, with widening regional income inequalities and the
emergence of
vulnerable urban groups. While increasing income disparities,
particularly
between rural and urban areas, often accompany development, factors
contributing to persistent inequalities create social strains and need
to be
addressed for equity reasons.
1.3 What China is doing now
China is pursuing policies to meet these challenges through its 10th
Five-year Plan (2001-2005), which aims in part at economic growth,
restructuring and reform by developing three Related areas. First, the
spread of market forces is being encouraged, especially through reforms
of
state enterprises, the financial system, agricultural output and labor
markets, and pricing of natural resources. Second, market development
is
being supported by building the legal, social, human, physical and
institutional infrastructure needed to spur private investment and
rapid
growth. Finally, and essential to its development agenda, China
continues to
go forward with broad-ranging initiatives for its integration with the
world
economy, building on its success in gaining WTO membership.
In parallel with its agenda for economic reform and growth, the Tenth
Plan
incorporates a Western Region Development strategy to assist the 12
western
and inland provinces where per capita income is less than half of that
of
the more developed coastal provinces, where illiteracy is higher, and
where
the largest proportion of China's very poor reside. This strategy began
with
stepped-up government investment, primarily in infrastructure,
throughout
the western region. The Government recognizes, however, that human
capital
development, environmental protection and an improved investment
climate(with flexible markets, basic physical infrastructure, and a
social
protection system)also need to be addressed by its western growth
strategy.
Since agriculture will continue to be the mainstay of the rural
economy,
agricultural research and technology development geared to the needs of
typically mountainous poor western areas are likewise viewed as
imperatives.
As indicated, environmental protection and sustainable development are
intrinsic to the Tenth Plan goals for both economic development and
poverty
reduction. In rural areas, it recognizes the inter-relation of poverty
and
environmental degradation, specifically severe soil erosion,
deforestation
and desertification. In urban areas, the Plan points out the need to
improve
the environment by reducing water and air pollution, the latter by
promotion
of clean coal energy sources and technologies.
1. Accountancy in China
1.1 History of Chinese accounting
1949-1960
At the time during this, the style of Chinese accountancy is just like
the
former Soviet Union, Russia, since the investor is only one ----the
Chinese
Government, the accounting formula is as below:
Fund coming in = Fund expenditure, which means no profit and even there
is
any surplus, it belonged to the government. At that period we use the
debit
and credit double entry bookkeeping technique as well as receiving and
paying double entry bookkeeping which is the transitional method of
Chinese
accounting. There were only one balance sheet and a receiving and
expenditure statement to be prepared during this time
1960-1978,
Because the leaders of China didn't be able to understand the debit and
credit double entry bookkeeping technique they did not know of the
meaning
of debit and credit the Financial Management of China practised a new
kind
of double entry bookkeeping technique which is called increasing and
deceasing debit and credit double entry bookkeeping technique. There
were
only one balance sheet and an income statement to be prepared during
this
time
1978-1993
This time, China carried on revolution and opening to the world, the
firms
fond that the foreign investors did not understand the increasing and
deceasing debit and credit double entry bookkeeping technique, and made
great misunderstanding between the foreign investors and the firms.
From
then on, we use the debit and credit double entry bookkeeping technique
one
again, but the other two methods were still used in some firms, such as
the
bank, the shops etc.
1993-1998
As China decide to set up the market economic and the opening police
more
widely practice, under the World's bank assistant, Chinese accountancy
has
changed a lot. The investor is more and more, not only the state is,
but
also the private person invertors, the formula of the accounting
equality is
as below:
Assets=liabilities +owner' equity
There were not only a balance sheet and an income statement, but also a
statement of changing financial position should be prepared during this
time.
1998-now
We have issued 18 detail accounting standards according to the
Accounting
Law and the basic accounting standards, further more, we will issue
total
about more than 30 standards. There were a balance sheet, an income
statement, and cash flow statement to be prepared from then on.
2.2 The Chinese accounting system
The detail accounting standards are: Inventories, Investments, Fixed
Assets,
Intangible Assets, Non?monetary Transactions, Leases, Borrowing Costs,
Debt
Restructuring, Revenue, Construction Contracts
Cash Flow Statements, Events Occurring After the Balance Sheet Date,
Changes
in Accounting Policies and Accounting Estimates, and Corrections of
Accounting Errors, Contingencies, Disclosure of Related Party
Relationships
and Transact, etc.
2.3 The organization of accountants in China
There are two kinds of accountants in China, one is CICPA, who are
auditors
outside the firms; and now there are about 130,000 CICPA in China,
among
them there are about 60,000 working in the Practice and there are more
than
4,300 accounting practices. The other is the financial accountants who
work
for the firms to supply useful preparation information. There are about
12,000,000 accountants in China. Corresponding, there are international
accounting standards (IAS) for auditing and the ACCA training has set
up in
China. But up to now, there is no international financial accountants
training in China.
3 The differences with IAS and how to coordinate
3.1 What the accountancy is for
Accountancy----just like a language between firms and government, the
bank,
the creditors and etc. It is the most important to use the same
language to
the different countries, and it makes people understand each other. For
example, the former President Bill Clinton of the United American's dog
and
cat, do you know about that? What happen if the dog and the cat are
live
together? Yes, they do fight, why? Because they have not the same
language.
Some scientists find out that the dog's language is quite different
from the
cat. When the dog totter his tail, he means very friendly, would you
please
to play with me? But what do think the cat? Maybe it means to the cat
is: Do
you want to fight? Let us do. Because so often they fight, at last, the
President had to apart form them. Now what is the accountancy? It is
just
something as a language. As global economic is unified more tighter
nowadays, the accountancy has become a business language by which the
firms
can communicate the government, shareholders, potential investors,
bankers,
employees, trade creditors in one country or in different countries.
3.2 The difference between Chinese accounting standards and IAS taking
Fixed Assets as an example Fixed assets (property, plant, and
equipment)
About fixed assets Chinese standards International standards
Identified Be held for use for rental Be held for use
Cost included Costs: value, value-added tax, import duties and other
related taxes, and any directly attributable expenditures for bringing
the
asset to working condition for its intended use, such as the cost of
site
preparation, delivery and handling costs, installation costs, and
professional fees. Costs, including the purchase price and duties paid.
However, general and administrative expenses as well as start up costs
are
excluded.
Basic for record History cost - depreciation- impairment History cost
- depreciation - impairmentFair value - depreciation - impairment
Non money exchange Carrying value of the asset surrendered,
Dissimilar items are recorded at the fair value of the asset(s)
received.
Similar items are recorded at the carrying amount of the asset(s) given
up.
Depreciation methods Straight-line method, the unit of production
method,
the double declining balance method and the sum of the digits method.
Straight-line, diminishing balance, and sum of the units method.
Impairment Only covers most assets which the firm owns. Most assets.
It also covers investments in subsidiaries, associates, and joint
ventures.
3.3 Why China does not use the IAS directly?
As stated above, accountancy is just as a kind of business language.
And
because this kind of language is affected by different background,
culture,
economic condition etc, we can use only one language. The reason why
China
does not use the IAS directly is:
(1) The Chinese economic market was set up on the basic of planning
economic
environment, and the government role has still very much influence the
market.
(2) State enterprises are the mainly firms in China
(3) The Chinese economic market has not wholly set up yet
(4) The assets revaluation system do not develop enough to estimate the
assets' fair value.
China has joined the WTO, more and more and more group enterprises as
well
as transnational corporations raise. To coordinate the different
countries'
accounting policies in different countries, to my opinion, every
countries
who are the members of WTO, should supply two kind of financial report
to
the investors, bank, creditors outside the firms. One of them should
be
prepared according to the international accounting standards and the
other
one maybe prepared according to their own accounting standards I do
think
that to develop IFA in China will help firms' information users to
understand the firms' financial position and their operation by the
same
language.
Mary Su Shuhuan May 2004