Accounting In China Essay Example for Free

Accounting In chinaw atomic number 18 testify1. insane asylum chinawargons rapid economic growth in the past two decades has amazed the ministration of the world. With chinaw bes accession to the WTO, affair activities with and within China lead further expand. China full understands that a sound fiscal coverage system plays a key role in the mathematical operation of economic development. The Chinese Ministry of Finance (MoF), who has the responsibility for regulating business relationship matters in China, has set itself the objectives of fostering investors combine in fiscal tuition, increase transparency of monetary coverage, and harmonize with International Financial describe Standards (IFRS), so as to reduce the costs of raising capital by openings and alleviate the attempt of financial crisis. 2. recital Of Development The old invoice and principles were designed to meet the needs of a planned economy, and therefore focused on whether the productio n goals of state-owned enterprises and their financial and costs plans were being met. Accordingly, the objectives of accounting and per cookance measurement some twenty years ago were significantly different from the financial reporting objectives in a modern mart oriented economy. Significant accounting reforms were undertaken in the past two decades due to several factors such as Since China opened its door to foreign enthronizations in 1979, the rapid growth of its economy, international trade and securities markets has influence new-sprung(prenominal) objectives for financial reporting. State-owned enterprises now look a lot like profit-oriented businesses, and managers and other users need tested and relevant financial information on which to base decisions about the efficient allocation of capital. At the akin time, china has reached out to the international community to form interchangeable ventures and gain greater access to the in style(p) technologies and t he worlds capital markets.See more Homelessness as a social problem Essay In the 1980s, the MoF issued the first set of accounting regulation, which was formulated by reference to international accounting practice, for joint ventures in China. In 1992, due to rapid development of the Chinese securities market, the accounting establishment for Experimental give voice Stock exceptional Enterprises was promulgated by the MoF in order to standardised accounting practice and disclosures by listed companies. This body was subsequently replaced by the Accounting dodge for Joint Stock Limited Enterprises (JSLE) in 1998. The 1992 regulation moved away from the traditional fund-based Soviet accounting model and incorporated many common Hesperian accounting practices. In the similar year, the MoF promulgated the Accounting Regulations for Foreign Investment Enterprises (FIE), the Accounting Regulations for Share Enterprises. In 1993 the Basic Accounting Standard for handicraft Enter prises came into force. It imposes some basic rules (e.g. that double entry bookkeeping essential be used, that a cash or funds statement must be included in the financial statements, and that consolidate financial statements must be provided where appropriate) set out a conceptual mannikin of China accounting and make some detailed rules of financial reporting. The conceptual framework introduced on a broader scope new accounting concepts and essential elements of financial statements that were in many notices based on international practices. The conceptual framework aspects of the regulation are reasonably close to US and IASC precedents. However, these pronouncements were still plunge to waste essential differences with international practice such as limited disclosure of financial information for the users to understand the results and financial position of the reporting enterprise. Another difference is that the regulation does not specifically separate the primary u ser or purpose of financial statements. Instead, a hierarchy of users includes the giving medication, banks, the public and an enterprises own management. This is really different from the US or IASB which emphasis on financial decision reservation by outside investors. In addition, the ASBE is based on historical cost without the revaluation allowed in IASB or UK rules or the increasing use of fair value in IASB/US/UK rules. Furthermore, substance over form is not established as a principle in China.3. The forward-looking Accounting Standards And Accounting corpse (Development after 1993). In 1993, with funding from the World Bank (US$2.6 million), the MoF engaged Deloitte Touchee Tohmatsu (DTT) as consultants to develop a consistence of Chinese Accounting Standards (CAS) broadly in run along with accounting and financial reporting practices used internationally. impression Drafts on about 30 standards have since been published between 1994 and 1996, and they were gene rally closely in line with the standards of the IASC. In 1997, the first standard was issued. It is on disclosure of relationships and transactions with related parties. In the same year, China joined the IASC, and became an official observer at Board meetings. In October 1998, an Accounting Standards Committee (CASC) was founded within Chinas MoF. It comprises academics and members of accounting firms as well as government experts. In 1998, the Ministry of Finance issued the Accounting System for Joint Stock Limited Enterprises (JSLE) to replace the accounting System for Experimental joint Stock Limited Enterprises in order to standardise accounting practice and disclosures by listed companies. In 2000, DTT was reappointed as consultants for the second build of the project. China accounting has achieved remarkable progress in unifying its accounting practices since Year 2001. In the same year, MoF issued a new comprehensive Accounting System for Business Enterprise (the Syst em). The new System replaced the Accounting System for JSLE form January 1, 2002. In other words, all JSLE (including all listed enterprise) and FIE are now need to follow champion unified new System. The system introduces the concept of substance over form and extends the want for consideration to all assets. The MoF plans to ultimately require all medium-size and large enterprises (other than financial enterprises) to adopt the new System, and announce its expectation that state-owned enterprise will adopt the new system over time. When fully implemented, the new System will replace the numerous inconsistent industry accounting regulations, enabling the financial statements of different types of enterprises to fashion more comparable.4. Impact Of The New Systems On FIE Before adopting the new System, FIEs financial statements which were prepared in accordance with the Accounting Regulation for FIE could not properly reflect the enterprises actual financial position and ope rating results, the enterprise had to make numerous adjustments when they compile financial statements under overseas accounting standards, such as IAS and US generally accepted accounting principles. The process was time consuming and imposed special cost of investment to the foreign investors. After the sufferance of the new System, the differences between FIEs financial statements under PRC GAAP and those prepared in accordance with international accounting practices will reduce further, thereby enabling the foreign investors to assess the performance of their investments more efficiently.5. China Accounting Standards Convergence With IFRS The importance and acceptance of IFRS has increased significantly over the past few years. While actively pursuing intersection point with IFRS, the MoF necessarily has to ensure that accounting standards appropriately train the national circumstances that exist during this transitional period in the economy. A very significant portion of the economy is dominated by state owned enterprises. Even after enterprises are restructured into joint stock enterprise and branched out from the government structure, functional or regional government that remain stakeholders still exert significant influences over the enterprises and their trading partners and their transactions. Free markets are not sufficiently developed in many areas. Financial statements are multi-functional, serving not only the needs of the investors only when also other interest parties including the State for supervisory and management purposes. Enterprises and professional intermediaries such as auditors and valuers are at a developing stage. During this transitional period, accounting standards must be realistically implementable by the preparers and auditors of financial statements. On 16 February 2006, the Chinese Ministry of Finance and the International Accounting Standards Board formally announced that Chinese Accounting Standards (CAS) wil l converge with International Financial Reporting Standards (IFRS) on 1 January 2007. Converging CAS with IFRS is one of many successful initiatives undertaken by the PRC government over the past global economy. Investors, analysts, regulators and other interested parties in recent years have been increasingly demanding more consistent and reliable financial reporting from companies around the world. The adoption and consistent application of accounting standards based on IFRS principles is widely viewed as a commitment to transparent financial reporting by these constituents. Transparent financial reporting is considered as the origination of investor confidence. The process of convergence has been started way back in November 2005 when several meetings had been held between MoF and board members of IASB. The process of convergence will involve integrating the IFRS principles into CAS and will result in the amendment of all existing standards and the issuance of an additional 22 Specific standards. While the revised CAS will not reflect a literal translation of IFRS, their scope will include all IFRS principles. In additional, they will contain interpretive guidance to address the accounting for specific types of transaction (e.g. combinations of companies under common control) and industry accounting issues (e.g. extraction of petroleum and born(p) bungle). The new CAS will comprise 1 basic standard and 38 specific standards. The revised CAS will first be applied to listed companies from 1 January 2007 and gradually applied to other types of entities. There will be differences between the revised CAS and IFRS to reflect unique circumstances in China. These differences, among other things, relate toa. A hindrance of the coke of asset impairment once it has been made b. The accounting for certain government grants c. Related companionship disclosures between State owned enterprises that have no direct investment relationship.6. Challenges faced by China in converging with IFRS. The effect of changing accounting policies involves some efforts such as Re-designing the financial reporting process to ensure that management has sufficient reliable financial information with which to prepare financial statements that concur with the standards, particularly in regards to the increased levels of disclosure required, and properly supports critical accounting estimates and judgements. The people involved in the financial reporting process will need to develop a new expertise and cleverness in applying revised CAS. Developing new accounting policy manual integrating new CAS upcountry management reporting (budgeting, forecasting, performance measurement) and external reporting (financial, statutory, investor) into daily operations across the organization. Implementing ongoing and sustainable processes such as valuations of piece options and derivatives, impairment testing hedge documentation and effectiveness testing, etc. in vite identification of new data wants due to financial statements and disclosure requirements. Train the head office and business units of the new reporting requirements. Provide training to finance and also non-finance staff including key management (e.g. finance, treasury, tax, human being resource and sales) on new CAS principles and new reporting requirements.THE NEW SYSTEM OF CHINESE ACCOUNTING STANDARDS signalize features and impact of the new accounting standards1. The new accounting standards represent convergence with International financial Reporting Standards. Most of the newly issued standards and revised standards make reference to the equivalent IFRS and adopt the principles and treatments similar to its counterpart. As a result, the financial statements prepared in accordance with the New Accounting Standards will be more comparable with those prepared in accordance with IFRS. Overseas investors and users of financial statements will understand the financial st atements of Chinese enterprise better and the cost of re-preparing financial statements for Chinese enterprises when getting overseas listing will be reduced. 2. The requirement of fair value measurement Under the new accounting standards, debt restructuring and no-monetary transactions will be calculated at fair value and gains that meet certain criteria will be recognized in the income statement. Whereas before the revision, those transactions were carried at book value and any gains arising from those transactions were not allowed to be recognized. In practice, the determination of fair values may not be easy for many entities and various valuation techniques are required. 3. Specify accounting treatments for important accounting issues such as business combinations and consolidated financial statement. In the past, there was neither formal accounting standards nor comprehensive and detailed guidelines in the area of business combinations and consolidated financial statemen ts. As a result, accounting treatments for similar business combination transactions may have varied across different enterprises causing much confusion and inconsistency. Therefore, the issuance of the standards on Business gang and Consolidated Financial statement will provide comprehensive and more authoritative sustenance and guidelines on these important accounting issues. 4. Specify treatments on new accounting issues and certain previously off-balance-sheet items will be recorded in the balance sheet Derivative financial instruments will be recognized on the balance sheet instead of only being disclosed in the notes to the financial statements. All shares and share options granted to employees to be measured at fair value and expensed in the income statement. 5. Standards relevant to important narrow down industries The New Accounting Standards will include a number of standards that are relevant to those specialized industries. For example, the foursome standards on Financial Instruments will have an impact on accounting practices in various financial institutions. The standards on Direct Insurance Contract and Re-insurance Contracts will affect players in the insurance sectors. The Extraction of oil colour and Natural Gas and Biological Assets are standards that are issued specifically for enterprises operating in the petroleum and gas industry and agriculture industry respectively.6. Impairment of Assets The previous accounting regulations in China allow the reversal of impairment under certain circumstances. However, under the new standard, it specifies that any recognized impairment waiver for stock-still assets and intangible assets cannot be reversed in future accounting periods. The restriction on impairment loss reversal does not apply to inventories, trade receivables and bank loans.7. More detailed requirements on disclosure The new standards provide users of financial statements with more relevant and transparent information, which will facilitate their economic decision-making. For instances, in respect of accounting policies and accounting estimates, the basis for the determination of significant accounting policies and accounting estimates is required to be disclosed. In relation to financial instruments, a detailed disclosure on the enterprises financial risk exposure is now required.8. Transitional adjustments The New Accounting Standards were applicable to listed companies effective from 1 January 2007. The MOF has issued transitional provisions which are included in the standard on First Time Adoption of Accounting Standards for Business Enterprises. The standard requires that at the date of transaction, an entity should reclassify, recognize and measure all assets, liabilities and owners equity in accordance with the New Accounting Standards and prepare an opening balance sheet. These transitional provisions may reduce the workload and complexities for preparers adoption of the New Accounting Standards.