Question

presentation this article: Yang, HH, Clark, C, Wu, C and Farley, A 2018, “Insights from accounting practitioners on China’s convergence to IFRS”,Australian Accounting Review, vol. 28, no. 1, pp. 14-27.

the main idea is "Critically discuss the current status of, and remaining challenges to, the convergence of Chinese Accounting Standards with IFRS".

Answer 1

In spite of the international adoption of IFRS, many countries, especially developing and emerging countries, lack necessary infrastructures for the consistent application of IFRS. Thus, the convergence of accounting standards on de jure level may not necessarily lead to convergence de facto. China is one of a minority of countries that have not required or permitted domestic companies to apply IFRS. The Chinese government requires listed companies in Chinese domestic capital markets and Chinese financial institutions to prepare financial statements in accordance with Chinese accounting standards (CAS). However, CAS is substantially converged and it is intended that remaining differences will be eliminated over time.

Following are some of the Challenges to convergence of CAS with IFRS

Endorsement

According to the Accounting Law, the National People’s Congress of China has delegated Chinese accounting standards setting authority to the Ministry of Finance (MOF). Since the IASB is a private standard setter without the power to issue legally binding standards, IFRS as issued by the IASB are not simply applied in each country or region and need to be endorsed by local authoritative agencies. Even if the MOF decides to directly adopt IFRS, it will be likely to add certain accounting regulations that are exempt in IFRS or exclude certain IFRS regulations in the Chinese-specific version of IFRS during an endorsement process. These deliberate modifications would lead to a national set of IFRS in China. Such a regionalization of IFRS opposes the IASB’s intended goal of facilitating cross-border comparability by establishing a single set of global accounting standards.

Interpretations of IFRS

Most of the Chinese accounting professionals have been accustomed to the rules-based approach during a long period of education and practice under the Chinese accounting system with detailed regulations. Thus, Chinese accounting professionals are considered to lack the necessary education and experience to make consistent interpretations and appropriate judgments under principles-based accounting standards IFRS. (World Bank, 2009)

Cost of IFRS Implementation

Cost of IFRS Implementation would be significant because

• Adoption of IFRS in China, either mandatory or voluntary, would largely increase the enforcement and regulation costs of supervisors, such as the MOF and the CSRC.

• Extensive application of fair value measurement would lead to a significant increase in supervision costs for financial reporting of listed companies.

• Direct adoption of IFRS would bring a substantial financial burden for accounting firms, especially for Chinese domestic ones.

Translation of IFRS

Literal translation of some accounting concepts and terms in IFRS is difficult because full equivalence in translation between English and Mandarin Chinese is rare. When an exact accounting terminology equivalent to an IFRS concept does not exist in Mandarin Chinese, translators tend to use the nearest equivalent. This may lead to a blurring of meaning or loss of significant differences in the concepts.

Training and Education

If the MOF adopts IFRS, it should strengthen IFRS-related training and education, which are essential to ensure the consistent interpretations and applications of IFRS in China. Indeed, the cost of IFRS-related training and education in China is expected to be higher than in Anglo-American countries, whose concepts and principles are mostly reflected in IFRS.