In the 21st century, globalisation is deemed inevitable in the development of the world economy. As commercial language, accounting information is internationally accepted so that control over accounting issues and the prevention of accounting fraud are critical to economic development (China Accounting Standards Committee, 2007). In this context, financial reporting quality is regarded as an endogenous function of market demands and political influences that are specific to each country (Chen & Cheng, 2007). The participation of Chinese companies in the world economy has grown during recent decades at a pace that surpasses all other economies significantly. Nevertheless, areas such as accounting and auditing remain a concern. China fully understands that a sound financial reporting system plays a
key role in the process of economic development (Financial Reporting in Mainland China, 2007). In saying so, it is important to mention that it is not the standards itself that seem problematic but rather the enforcement of standards.
Based on a report written in 2003, this analysis will present aspects that can be a concern with regard to enforcement of accounting standards. After describing each point, an update to what extent it has been resolved will be given. Finally, this report will highlight new enforcement issues that have arisen since 2003 before concluding with an outlook concerning China’s future in the field of accounting.
Table of Contents
1. Introduction
2. Factors influencing enforcement of accounting standards
2.1 Regulatory bodies and legal framework
2.2 Professional independence and dominance of state-owned enterprises
2.3 The government's non-interest in effective enforcement
2.4 Shareholders
2.5 Banks
2.6 Financial Press
3. New enforcement issues
3.1 Introduction of International Financial Reporting Standards (IFRS)
3.2 Availability of personnel
4. Outlook
Objectives & Core Themes
This report evaluates the evolution of accounting standards enforcement in China since 2003, specifically addressing the extent to which previously identified systemic problems have been resolved and identifying emerging challenges in the current financial reporting landscape.
- Analysis of institutional oversight and the effectiveness of accounting regulations.
- Evaluation of professional independence and the impact of state-owned enterprises.
- Examination of the transition toward International Financial Reporting Standards (IFRS).
- Assessment of the influence of shareholders, banks, and the financial press on compliance.
- Identification of critical bottlenecks, including personnel shortages and regulatory gaps.
Excerpt from the Book
Professional independence and dominance of state-owned enterprises
Several studies have discovered that professional independence is critical with regard to an effective enforcement of accounting standards. In China, socialist-type close connections between regulating institutions and companies are still the norm, thus reducing the probability of reliably detecting fraud. In a network-oriented economy such as China’s, established personal networks cannot be dissolved by formal changes. It appears as if the aim of a majority of companies is not to guarantee a neutral analysis of accounts but keeping traditional relationships alive by choosing accounting companies that are established within personal networks (Opper, 2003). Today, these networks prevail in China so the degree of independence might have increased since 2003, however the general problem still exists.
Not mentioned by Opper, independence can also refer to the composition of the board overseeing a company and as such the accounting work of a company. However, independence is hampered with by means of supposedly independent directors having ties to the company they are overseeing (Special Report China, 2006). Therefore, new legislation defines that an independent director must not be a significant shareholder or have been an employee of the company, have close family ties with any of the directors or senior employees, have a materialised business relationship with the company and receive additional remuneration from the company apart from a director’s fee (Chen & Cheng, 2007). Due to the requirement of at least two independent directors on the board, including one accounting expert, it is expected that the director’s monitoring role will improve the level of compliance with valid accounting standards.
Summary of Chapters
1. Introduction: Provides the contextual background of accounting enforcement in China's growing economy and outlines the purpose of the report.
2. Factors influencing enforcement of accounting standards: Examines systemic barriers such as legal frameworks, government influence, and the roles of key stakeholders like banks and shareholders.
3. New enforcement issues: Addresses contemporary challenges, particularly the complexities of implementing IFRS and the shortage of qualified accounting professionals.
4. Outlook: Summarizes the progress made and suggests future directions for achieving world-class financial reporting standards in China.
Keywords
China, International Accounting, Enforcement, IFRS, Accounting Standards, Financial Reporting, Corporate Governance, Auditing, State-Owned Enterprises, Regulatory Compliance, Market Economy, Accounting Fraud, Independent Directors, Financial Disclosure, Economic Development
Frequently Asked Questions
What is the core focus of this document?
The report investigates the enforcement of accounting and auditing standards in China, assessing how effective changes have been since the 2003 analysis by Opper.
Which thematic areas are prioritized?
The analysis covers the legal framework, corporate governance, the influence of state-owned enterprises, the role of financial institutions, and the impact of the financial press.
What is the primary objective of this research?
The objective is to determine if historical enforcement issues in Chinese accounting have been resolved and to highlight new challenges that have emerged in the intervening years.
What research methodology is employed?
The authors employ a comparative analysis of academic reports, legal updates, and industry surveys to evaluate the evolution of China's financial reporting environment.
What topics are discussed in the main body?
The body analyzes the institutional shift toward IFRS, the strengthening of shareholder rights, the persistence of staff shortages, and the role of independent directors in board supervision.
Which keywords define this paper?
Key terms include China, accounting standards enforcement, IFRS, corporate governance, and financial reporting quality.
How does the role of the financial press currently affect accounting enforcement?
The financial press remains a weak enforcement agent in China due to government control, censorship, and the dominance of state-run media, which limits the exposure of accounting fraud.
What impact did the introduction of IFRS have on Chinese accounting?
The convergence toward IFRS represents a move toward greater transparency and international integration, though it has also created new challenges related to the need for updated professional expertise and systematic implementation.
How have shareholder rights changed since 2003?
Revisions to the Company Law and Securities Law in 2006 have granted shareholders more power to disclose information and pursue legal action against management, providing a more robust mechanism for supervision.
- Quote paper
- Peter Schulz (Author), Florian Coulaud (Author), Mathieu Debilliers (Author), Ehsan Amidi (Author), 2007, Enforcement issues of accounting principles in China, Munich, GRIN Verlag, https://www.grin.com/document/113706
