With the imminent acceptance of China into the World Trade Organisation, the Chinese Ministry of Finance has confirmed the country’s ambition to embrace international accounting standards.
It is likely that China will enter the World Trade Organisation at the start of next year – maybe even as early as September this year – and government officials have stated they believe embracing IAS is the only plausible option available to them.
Only last month the United States and China reached agreement on issues holding up Beijing’s entry, with both parties stating they would work towards bringing China into the global trade body as soon as possible.
The agreement was forged between China’s foreign trade minister, Shi Guangsheng and US trade representative Robert Zoelleck and it is significant because it effectively removes the final stumbling block to WTO membership.
While WTO draws closer for China, Dr Yugui Chen, deputy secretary general of the China Accounting Standards Committee, says the basic accounting standards in China have been, and will continue to develop in a similar vein to that seen in the western world. Chen, says: ‘We set a programme for reform back in early 1991 to modernise our economy. At that time we accepted and set a goal to implement our standards in line with the IASC.’
Since then, the Chinese committee has been working hard on the logistics of introducing reformed applied accounting standards. Between 1993 and 1995, it completed a draft of applied standards, financed to the tune of $2.44m by the World Bank and in consultation with Deloitte & Touche.
In early 1996, the ministry published in Chinese and English, 30 exposure drafts. Since then it has finalised 13, with the remaining 17 still up for consideration – but due to be completed by 2004.
All has not run smoothly, however, with a number of accounting firms, regulatory bodies and academics criticising specific areas within drafts.
Indeed Chen says three further drafts relating to fixed assets, foreign currency translation and disaggregated secondary reports will be published this year, but another two will have to be revisited following widespread criticism.
Since 2000, the World Bank committed further funds to a follow-up project, again calling in D&T for advice. But there is the continuing difficulty of cross-border interpretation of company financial data. Although national rules are moving towards an international benchmark, the rules can still differ markedly.
‘We can see some differences between Chinese and IAS. These include debt restructuring, but we have to overcome these issues in our application and setting.
‘But it can be problematic when trying to implement international standards because of the difficulties relating to our economic situation and background.
We do often have to consider what will happen if we apply a particular standard in China, when it has been developed against a western background.
It is essential we balance our business world against that of the West,’ adds Chen.
A recent international survey of national accountancy rules in 53 countries, published by the large accountancy firms, demonstrated the difficulties of cross border implementation.
The survey found almost all the written national rules also allow significantly different treatments from IAS. The report looks at 60 accounting measures including areas of disclosure and highlights instances where countries’ rules would not allow or would not require the IAS accounting treatment.
Hong Kong accounting for instance may differ from that required by IAS because of the absence of specific Hong Kong rules or inconsistencies in as many as 30 areas including IAS19, employee benefits; and IAS38, intangible assets.
‘We are very concerned about what effect entry into the WTO will have on our economic development, accountants and accountancy standards setting,’ says Chen.
Additionally the accountants in China have had to learn fast. It wasn’t until 1983 young accountants were sent abroad to study. Since their return they have played a large role in the development of the profession.
Chen adds: ‘For many years accountants in China have not had to use their own judgement. The local profession is poor in this area; we need to train our accountants to be sophisticated, experienced and capable to make them more competent.
‘The profession is growing up – but I do hope our local accountants play a more important role and that more foreign firms gain more confidence in them as partners.’
So 2004 looks likely to be a big year as this is when the European Commission has proposed all listed EU companies align their accounting practices in accordance with the International Accounting Standards – and if the Chinese government has met its targets, it will have revised its accounting standards.
Just one half of UK practices have implemented a pricing structure around auto enrolment implementation and advice - with many suffering increased costs
Deloitte's north-west Europe foray; BDO, Smith & Williamson investment paths; Shelley Stock Hutter; and Wilkins Kennedy discussed by editor Kevin Reed on our Friday Afternoon Live broadcast
Accountants should alter their perspective on auto-enrolment to maximise business opportunities, according to Eric Clapton.
Kevin Reed discusses whether new accountancy group Cogital can rival the Big Four...and its likely direction of travel