China International Convergence Of Accounting Standards Strategy Research

Accounting standards are a set of rules as well as policies with the character of public good. The selection of accounting standards is a process of political decisions and has economic consequences. Its development is closely related to a country’s economy, laws and regulations, property system, language and culture of a nation. The globalization of current economy and capital market highlights the importance of accounting as a business language. After the financial crisis in2008, in order to stabilize the global economy and financial markets, the G20leaders’summit required a set of single, high-quality global accounting standards to be set up. In response to this requirement, IASB and FASB committed to re-double their efforts to improve the quality of the accounting standards and International Financial Reporting Standard (IFRS) has gone through a dynamic reform period. In November2005, China and IASB signed a joint statement on the convergence of China Accounting Standard (CAS) and IFRS, also delivered an on-going convergence roadmap between CAS and IFRS in April,2010. China committed to keep the on-going convergence with IFRS.The dissertation discusses the implied meaning and the characteristics of the accounting standards and concludes that the accounting standards are rules of conduct. As a public good, the choice of accounting standards is a process of political decisions and has economic consequences. The development of accounting standards is a change of system and is affected by the vicissitudes of system environment and passage. However, accounting standards, as a framework for generating and communication of accounting information, is a system that can reduce transaction cost. If accounting information generated following the accounting standards can be non-bias and reflect the true economic transactions, it can better serve their users. Accounting standards, as a public good-once generated, can be referenced and used by others. Thus the accounting standard is a technical system as well as a social one. IASB is developing a principle-based or objective-based standard, its objective is changing from legal model to finance-model and expects IFRS being a high-quality standard system and become the candidate of a single global accounting standard.Accounting internationalization has gone through stages of harmonization, convergence and equivalence. If China chooses to substantially converge with IFRS, it’s necessary to understand the latest developments of IFRS to assess whether it’s feasible for China to converge its accounting standards with IFRS and how to achieve convergence. Right now, there are more than100countries and/or regions who choose to adopt IFRS directly or convergence with IFRS. Among the team are most of the countries from G20-European Union, Canada, Brazil, India, Russia and South Africa. Although US has not decided whether and how to adopt IFRS into US issuers, its related agencies have been issued several work plans on this topic and FASB has been working closely with IASB to develop accounting standard and decrease differences between US GAAP and IFRS. At present, there are two approaches to adopt IFRS, i.e. full-use approach and non full-use approach, the latter includes three different types-convergence approach, endorsement approach and condorsment approach. The motives of the accounting convergence are different among the nations and economies, some with the intention of achieving the leadership in IASB, some focus on the influence while others are enjoying the fruits of IASB to improve the image of its enterprises and capital markets. Understanding the motives and convergence approaches of the other nations and economies can help China learn the experiences.During the short history of China accounting standards development and application, quite a few problems came out. For example, some standards have not been strictly implemented and abided by Chinese enterprises, some standards with new, complex events and transactions are not been understood by their users. Also the users are accustomed to the rule-based accounting system and do not adopt the principle-based or objective-based principles hence not acting well in professional judgments and accounting estimates. They don’t pay enough attention to the full disclosure of standard application. As China chooses to converge with IFRS instead of adopting IFRS directly, the differences between China accounting standards and IFRS are not stable and are bigger than what stated in agreement signed by China and IASB. The differences may come from difference in the standards as well as their implementation; also the different development pace in IFRS and China accounting standard may result in new differences and all these will affect the equivalence between China standard and IFRS.Though China issued the IFRS convergence roadmap in2010, the roadmap can’t serve as full strategy and it lacks some elements. A complete strategy should cover the purpose of the convergence, trade-offs, constraints to be identified and then find a whole set of activity to realize the strategy. This dissertation agrees that accounting standards equivalence can be the current convergence objective, based on the constraints that China does not have a mature market mechanism, and its users are not capable of applying the principle-based accounting standards and are used to the management system of planned economy, a whole activity can be identified.This dissertation believes a standard-by-standard introduction will be suitable after China introduced IFRS with a big-bang approach, and the new IFRS should be assessed individually and adopted into China with the same pace of IASB. In response the reality that China users are not accustomed to the principle-based standard and faced some difficulty in understanding the economic reality of new and complex events and transactions underlying some standards, it is better that China may issue more guidelines, analyses with case-study of IFRS. Also China should reform organizations and enhance its capability building to help China grasp more benefits under IASB mechanism. It is better that China can improve the transparency in standard-building and monitoring and set up a regular organization to assess the new IFRS and get the support from domestic standard users. The convergence of the accounting standards can help China gain access to overseas capital markets and attract more foreign investments, and finally China can integrate into the global economy.