Chinese accounting standards
Encyclopedia
Chinese accounting standards are the accounting rules used in Chinese
state-owned corporations in mainland China
. They are currently being phased out in favour of generally accepted accounting principles
or International Accounting Standards.
As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.
Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of industry. Therefore unlike Western accounting standards, they are less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet
, Chinese accounting standards do not include an accounting of the debt
s that a corporation holds, and are less suitable for management control than for accounting for tax purposes.
This system of accounting is widely considered to be unsuitable for managing corporations in a market economy
. As a result, Chinese corporations are gradually moving toward International Financial Reporting Standards
. This has proven to be a massive undertaking. As a consequence Chinese companies who offer shares for sale in the United States used to be required to prepare three sets of statements, one using Chinese accounting standards (China GAAP), one using international standards (IFRS), and one using North American GAAP standards (US GAAP). However, since 2008 the U.S. Securities and Exchange Commission (SEC) allows foreign private issuers to use financial statements prepared in accordance with IFRS.
However, in recent years, The Finance Department of Chinese Government has issued new Chinese Accounting Standards which converge into IFRS and the similarity is almost 90–95%. The translation cost has been reduced greatly because of this measure.
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
state-owned corporations in mainland China
Mainland China
Mainland China, the Chinese mainland or simply the mainland, is a geopolitical term that refers to the area under the jurisdiction of the People's Republic of China . According to the Taipei-based Mainland Affairs Council, the term excludes the PRC Special Administrative Regions of Hong Kong and...
. They are currently being phased out in favour of generally accepted accounting principles
Generally Accepted Accounting Principles
Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...
or International Accounting Standards.
As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.
Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of industry. Therefore unlike Western accounting standards, they are less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
, Chinese accounting standards do not include an accounting of the debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
s that a corporation holds, and are less suitable for management control than for accounting for tax purposes.
This system of accounting is widely considered to be unsuitable for managing corporations in a market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
. As a result, Chinese corporations are gradually moving toward International Financial Reporting Standards
International Financial Reporting Standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
. This has proven to be a massive undertaking. As a consequence Chinese companies who offer shares for sale in the United States used to be required to prepare three sets of statements, one using Chinese accounting standards (China GAAP), one using international standards (IFRS), and one using North American GAAP standards (US GAAP). However, since 2008 the U.S. Securities and Exchange Commission (SEC) allows foreign private issuers to use financial statements prepared in accordance with IFRS.
However, in recent years, The Finance Department of Chinese Government has issued new Chinese Accounting Standards which converge into IFRS and the similarity is almost 90–95%. The translation cost has been reduced greatly because of this measure.