China new accounting standard system

New accounting standards which comply with the International Financial Reporting Standards are supposed to be adopted by the end of 2009 in China. The first group of companies adopting the new accounting standards includes China Unicom, China Mobile, China Telecom, China Petro Corporation, etc. And these enterprises are all in technology or energy areas.

Other organizations such as small and medium-sized companies, occupying up to 99% of the total enterprises in China, will use the new accounting system in the future.

Besides accounting standards, the Ministry of Finance also considers modify the current internal control system on accounting in order enhance the transparency and credibility of information released by companies.

From the process in the following, we can see that the pace of reforming accounting system seems fast and efficient.

In Feb, 2006, to be line with International Financial Reporting Standards which are being used in around 100 countries at present, China decided to carry out new accounting standards.

One year later, on January 1, 2007, China released new accounting standards, and implemented them at domestic accounting and auditing firms.

In the past, foreign investors usually had a headache when looking for reports released by China’s domestic companies, for the accounting standards are quite different from the international accounting ones. This also brought out mistakes when comparing one domestic firm to foreign ones. This also brought out mistakes when comparing one domestic firm to foreign ones. What’s more, several methods could be chosen to measure production and profit, this made some firms perform opportunism behaviours.
http://www.chinaorbit.com/china-economy/chinese-accounting-standards.html

Therefore, the accountancy reform is really a big progress in Chinese economy. It is expected to improve confidence of foreign investors. "In the A share market, we used to choose stocks of those listed firms who also issue H shares or B shares, because under that situation, those firms' financial reports are disclosed under the requirement of international standards, which are more reliable to us," Cai Hongping, head of the investment bank, BNP Paribas Peregrine's Asia department's commented.

Moreover, this likely to “enable a broader base of investors to consider investment in more Chinese companies,” says Yvonne Kam of PricewaterhouseCoopers.