As is known, the Communist Party of China is the sphere party of China. The defined the Peoples Republic of China as a communism state. Although, Deng Xiaoping the former chair adult male of Chinese authorities has decide to alter the economic system of China into a market economic system, the political nature of China was non been Changed. Although the Chinese GAAP is meeting with IFRS, some regulations will ne’er be changed, such as the ownership of land.
What should be mentioned is that this essay will merely concentrate on the Chinese accounting system after 1992, as the accounting system changed quickly and significantly during the modern history of China.
Main Body
Cardinal Factors in the Business Environment
Political is the chief factor which influences Chinese economic system along with the accounting system. Other factors do do influences, but with the way of political. In many occasions, it is hard to specify whether one factor is political factor of non-political.
Political
The Communist Party of China identified Deng Xiaoping ‘s theory to be the counsel of the Party and record it into the Party ‘s fundamental law. Therefore, Deng Xiaoping ‘s theory became the footing of China ‘s accounting theory.
The Party defined that the finish of Chinese economic reform is to construct up the socialist market economic system system and decided that the Minister of Finance will be in charge of the national accounting work ( Guohua Zhang, 2005 ) .
Economic & A ; Political
The authorities decided to reform the State-owned endeavors. Therefore, the MOF issued Accounting System for State-owned Enterprises.
The authorities decided to let Sino-foreign accounting houses to be set up in China. Thus, the MOF issued Temporary Methods of Administration on Sino-Foreign Accounting Firms.
The authorities decided to reform the economic system in the countryside. Therefore, the MOF issued Financial Systems for Village Cooperative Organizations and Accounting Systems for Concerted Village Organization
The authorities decided to set up the modern concern system. Therefore, the MOF issued Impermanent Regulations on Bankruptcy Accounting of State-owned Enterprises, and Temporary Regulations on Mergers and Acquisition Accounting etc.
The authorities decided to reform the revenue enhancement system. Therefore, the MOF issued Regulations on the Treatment of Value Added Tax Accounting, and Regulations on the Treatment of Business Tax Accounting.
The authorities decided to reform the financial system. Therefore, the MOF issued Accounting Standards for Utility Entities, Accounting Regulations for Utilities Entities, Accounting System for Financial General Budgeting etc.
The authorities decided to reform the medical attention and insurance system. Therefore, the MOF issued Accounting System for Medical Care Agencies and Accounting System for Insurance Companies ( Guohua Zhang, 2005 ) .
International & A ; Political
Sponsored by the World Bank, the MOF signed a pact with Deloitte & A ; Touche international accounting company in Beijing, who would offer consult and assist Chinese authorities to set up its accounting criterion in the undermentioned three old ages subsequently.
Detailed accounting criterions were researched and issues with the aid of Deloitte, such as the emerging of foreign investing accounting, and transnational concern accounting and The employment of positive accounting research method.
Legal & A ; Political
The authorities decided to hone and develop the legal system. Thus the MOF format the accounting legislative assembly system and issued Certified Public Accountants Law, the Company Law, and the Bankruptcy Law etc.
The authorities decided to revise Accounting Law. Thus the MOF issued Rules on Enterprises ‘ Financial Accounting Report and revised accounting criterions.
Educational & A ; Political
The authorities decided to reform the instruction system. New accounting course of study has formed in universities and colleges, which is more towards international accounting system ; Cooperative preparation category were held both in China and abroad ; Onsite preparation become regular ; National accounting colleges were established to offer advanced preparation for managerial endowments.
Professional & A ; Political
The MOF requires that the one-year studies of state-owned endeavors should be audited by CPA. Thus CPA ‘s audit for the concern ‘ one-year study
Regulatory Framework
Ministry of Finance
The China ‘s Ministry of Finance ( MOF ) , a governmental organic structure supervised by the State Council, is the lone entity authorized to proclaim Chinese accounting criterions. The MOF determines the composing, timing, and execution methodological analysis for these accounting criterions. The criterions promulgated by the MOF are compulsory for Chinese concern endeavors ( KPMG, 2011 ) .
China Accounting Standards Committee
The China Accounting Standards Committee ( CASC ) was established in 1998 as the important organic structure within the Ministry of Finance responsible for developing accounting criterions. After it was formed, the CASC began publishing criterions on such issues as the hard currency flow statement, debt restructuring, gross, nonmonetary minutess, eventualities, and rentals. All of these criterions were aimed at meeting Chinese accounting criterions with International Financial Reporting Standards ( KPMG, 2011 ) .
China Securities Regulatory Commission
The China Securities Regulatory Commission ( CSRC ) regulates China ‘s two stock exchanges: Shanghai and Shenzhen. It sets regulative guidelines, formulates and enforces market regulations, and authorizes initial public offers and new portions. A codification of corporate administration was introduced in 2002.
The CSRC besides issues extra revelation demands for listed companies. Therefore, revelation demands for listed companies are established by two authorities organic structures, the Ministry of Finance and the CSRC ( KPMG, 2011 ) .
Government vs. Association
In many western states, like UK and USA, professional association are authorised to do the accounting criterions. The state of affairs is rather different in China. The China ‘s Ministry of Finance is the lone entity authorized to proclaim Chinese accounting criterions. The Chinese Institute of Certified Public Accountants ( CICPA ) does non hold right to put accounting regulations. It is charged to put the demands for going a CPA, administer the CPA scrutiny, develop scrutinizing criterions, and is responsible for the codification of professional moralss. Although there is a tendency that the MOF began to inquire more advices from CICPA when doing accommodation of accounting criterions, it is still a inquiry whether the CICPA would be entitled to do some accounting regulations in the hereafter.
Summary of the Accounting Rules and Methods
Accounting Standards for Business Enterprises
In February 2006, the MOF issued the debut of 39 new Chinese accounting criterions. It consist a basic criterions and the 38 specific accounting criterions for concern endeavor ( ASBEs ) . The new Chinese accounting criterions were adopted by all listed companies from 1 January 2007 and are being phased in over clip for other companies and endeavors.
3 Types of Market Share
A-shares are those that are listed and traded in local currency and are available merely to Chinese subjects. From December 2002 certain qualified foreign institutional investors ( QFII ) may buy A-shares on Chinese stock exchanges but they must derive anterior blessing and must run within a quota.
B-shares are issued domestically by PRC companies and until 2001 were available merely to foreign investors. They are now besides available to domestic investors keeping foreign currency histories.
H-shares are denominated in Hong Kong dollars and are besides available merely to foreign investors.
Legal Requirement for A-Shares Issuing
Any endeavor can publish A-share if it meets a series of legal demands, the chief 1s being:
It must be aligned with the province ‘s policies of industrial development.
It must be approved by both the local authorities and the CSRS.
The proportion of A-shares to entire portions must be at least 25 per centum ( or 15 per centum in the instance of the largest companies naming in Shanghai ) and the proportion of employees to entire portions must be less than 10 per centum.
In the last fiscal twelvemonth, the per centum of net assets to entire assets must me at least 30 per centum and ratio of intangible touchable assets must be less than 20 per centum.
It must hold a good recognition record over the last 3 old ages.
If a company does non run into these standards but it is a hi-tech, high-growth possible company it may name in the Shenzhen SME board.
CSRC ordinance
The Section 3 of Securities Law ( 1999 ) sets regulations for the go oning revelation of information, qualifying that:
‘The paperss for the issue and listing of portions or corporate bonds announced by companies shall be true, accurate and complete ; they may non incorporate any falsities, misdirecting statements or major skips ‘ ( Article 59 ) .
Particularly of import in this subdivision of the Securities Law are Articles 61 and 62 which regulate the revelation of information by listed companies.
Under Article 62, companies are required to inform the stock market and the populace of any monetary value medium or ‘major ‘ events.
Under Article 61, companies are required to subject, within four months of the twelvemonth terminal, an one-year study including:
a brief history of the company ‘s general state of affairs ;
the company ‘s fiscal and accounting studies and concern state of affairs ;
a brief debut to the managers, supervisors, directors and senior direction and information in their shareholdings ;
inside informations of portions and bonds issued, including names and shareholdings of ten largest stockholders ;
Other affairs specified by the securities regulative authorization.
They must besides publish a semi-annual study within 2 months and quarterly studies within one month of relevant period-end. All of these must be published at the same time in a corporate revelation newspaper and web site designated by the CSRC and available at the company ‘s central office.
Decision
Since the Chinese authorities decided to construct a market economic in China, the economic system is going more and more similar with western state along with its accounting system. As the government of Communism Party of China and Socialism nature of this state, the accounting system will non be complete same as IFRS. At the same clip, the MOF will make some necessary accommodation harmonizing to the economic development of China.
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