Factors influencing international differences in corporate reporting Essay

The two Asiatic giants and the universe most populated states, China and India, have registered outstanding growing public presentations in recent old ages. More significantly, their continued economic enlargement has been much anticipated to assist prolong universe economic growing as economic chance in the industrial universe darkens.

For three decennaries, China ‘s economic system has grown by about 10 % a twelvemonth to go the universe ‘s 2nd largest measured in buying power para footings. Between 2000 and 2006, China contributed 15 % of the entire addition in universe GDP. Likewise, India ‘s economic system has besides grown quickly in recent old ages, by more than 8 % a twelvemonth since 2003.

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There are major international differences in accounting patterns and corporate fiscal coverage of India and China. This is chiefly due to 4 factors: Cultural, Social, legal and economical systems of the state.

Socio – Culture

Some of the many societal and cultural elements that can act upon a company ‘s corporate coverage in China and India are:


Both in India and China, it is based on Bolshevism. In India there is no criterion for honoring persons of a company that are proactive in their calling promotion. Religion is non the ground for individuality. Some faiths have a greater set of regulations that need to be followed. Making concern in India involves constructing relationships. Indians merely cover favorably with those they know and trust – even at the disbursal of moneymaking trades. The Chinese Bolshevism is chiefly reflected in trueness towards the household. Chinese Bolshevism should be categorized into the dimensions of perpendicular Bolshevism and horizontal Bolshevism ( Singelis et al. , 1995 ) in different Chinese-majority societies.

Power distance

In both India and China, societal hierarchies are really much in topographic point and even at work it is non easy to be friendly with one ‘s foreman in most organisations. India ‘s Power Distance mark was really high for civilization, with a ranking of 77 and China ‘s significantly higher Power Distance ranking of 80 compared to a universe norm of 56.5. The high power distance indicates a high degree of inequality of power and wealth within the society. This status is non needfully subverted upon the population, but instead accepted by the population as a cultural norm.

Uncertainty Avoidance

In India, the rank in the Uncertainty Avoidance dimension is 40. The population may hold fewer regulations and ordinances with which to try control of every unknown and unexpected event or state of affairs, as is the instance in high Uncertainty Avoidance states.

China scored lower, at merely 32, bespeaking an even more broad society. While China may non ever place great accent on Torahs ( this accent has changed radically in the last 20 old ages ) and the official faith is godlessness, the cultural anticipation placed on everyone tends to command behaviour. That is, you may non be thrown in gaol for interrupting a jurisprudence or regulation, you-and your family-will be disgraced and shunned.


India has Masculinity as the 3rd highest ranking Hofstede Dimension at 56, with the universe norm merely somewhat lower at 51. The higher the state ranks in this dimension, the greater the spread between values of work forces and adult females. It may besides bring forth a more competitory and self-asserting female population, although still less than the male population.This is the one dimension in which China most aline itself to the remainder of the universe, and yet, it is frequently wholly missed by Western business communities, who think that the adult females in China are, for the most portion, ignored. To the contrary, There are really powerful and inspiring adult females in China.

Long Term Orientation

India ‘s Long Term Orientation Dimension rank is 61, with the universe norm at 48 India has a really high mark significance that their civilization is more relentless and thrifty. It is expected that the Indian bourgeois will necessitate to be after farther out in their concern programs because of their demand for Long-run Orientations. Geert Hofstede analysis for China has Long-run Orientation ( LTO ) the highest-ranking factor ( 118 ) , which is true for all Asiatic civilizations. This Dimension indicates a society ‘s clip position and an attitude of persevering ; that is, get the better ofing obstructions with clip, if non with will and strength.


China ‘s economic system grew by 7.9 % in 2008. The Chinese authorities is determined to go on to transport out more proactive financial policies. Over the past few old ages, the authorities has issued one million millions of RMB of extra exchequer bonds to fund substructure building. The authorities investing has efficaciously stimulated demand and laid a solid foundation for future economic growth.A

China ‘s province cardinal Bank is trying to keep a steady value for the RMB in order to help its passage from a soft currency into a full fledged difficult currency, capable of being traded in the planetary money market.

A In China, despite the rise in consumers disbursement, the consequence of increased competition in most markets and with consumers extremely cost witting agencies that monetary value rising prices has slowed assisting the economic system signifier over heating leting an addition in GDP ( gross domestic merchandise ) in recent old ages.

India ‘s diverse economic system encompasses traditional small town agriculture, modern agribusiness, handcrafts, a broad scope of modern industries, and a battalion of services. Servicess are the major beginning of economic growing, accounting for more than half of India ‘s end product with less than one tierce of its labour force.

The Indian economic system has posted an mean growing rate of more than 7 % in the decennary since 1997, cut downing poorness by about 10 per centum points. India achieved 9.6 % GDP growing in 2006, 9.0 % in 2007, and 6.6 % in 2008, significantly spread outing industries through late 2008. India besides is capitalising on its big Numberss of knowing people skilled in the English linguistic communication to go a major exporter of package services and package workers.


Legal factors include countries such as revenue enhancement policy, labour jurisprudence, environmental jurisprudence, trade limitations, duties, and political stableness. Political factors may besides include goods and services which the authorities wants to supply or be provided and those that the authorities does non desire to be provided.

In China, legal regulations have been applied on new portion issues to public listed companies. The returns of portion issues by listed companies except for fiscal type listed companies may non be used for investing in fiscal establishments such as commercial Bankss and securities companies.

In India there is a Tax policy which is different from other states models, Deferred Tax assets and liabilities should be recognised for all timing differences subject to consideration of prudence in regard of deferred revenue enhancement assets. Unrecognised deferred revenue enhancement assets are reassessed at each balance sheet day of the month and are recognised to the extent that it is certain that such antecedently unrecognised deferred revenue enhancement assets will be realised. Deferred revenue enhancement assets and liabilities are measured utilizing revenue enhancement rates that have been enacted or substantively enacted by the Balance Sheet day of the month.

The comparing of the fiscal statements and one-year studies in 2 different states which are ( one ) TATA Power Company limited in India and ( two ) China Shenhua Energy Company Limited in China.

In the twelvemonth 2008, the fiscal statements ( Appendix ) are prepared by China Shenhua Energy Company Limited ( CSEC ) in conformity with the China Accounting Standards for Business Enterprises ( 2006 ) issued by the Ministry of Finance of the People ‘s Republic of China ( Appendix ) .

Whereas, the amalgamate fiscal statements ( Appendix ) of an Indian company, which is TATA Power Company limited ( TATA ) have been presented in conformity with Indian Generally Accounting Accepted Principles ( Indian GAAP ) ( Appendix ) .

Since the both states are utilizing the difference accounting policy, delight happen the below revelations which are some cardinal differences and similarities between China Accounting Standards for Business Enterprises ( 2006 ) and Indian GAAP, based on criterion and readings.

But this twelvemonth, Chinese Accounting Standards ( CAS ) were mostly replaced by the International Financial Reporting Standards ( IFRS ) , to convey China more in line with the remainder of the universe. However non all companies have started following it yet.

India is besides easy altering signifier Indian GAAP to IFRS every bit early as 2010. This procedure began in 2008 and has been used by many companies to be in line with the remainder of the universe.

Balance Sheet

There are some different standard elements in the balance sheet between CSEC and TATA as following illustrations.

For CSEC, harmonizing to China Accounting Standards, Under the assets, they are segregated into current and fixed assets. Besides that, the points under non-current liabilities besides clearly listed down. Hence, those stockholders who are unprofessional besides able to read and understand the study.

In TATA, there is a clear Separate presentation of fixed assets and current assets. Fixed assets are stated at the cost of acquisition, less accrued depreciation. Direct costs are capitalized till the assets are ready to be put to utilize. These costs include funding costs associating to specific adoptions attributable to fixed assets. It is divided into 2 sections: financess employed and application of financess. The inside informations are attached in the notes to account. They have non clearly list down the points in the study. Therefore, their format are non particularly good adapted for reading by non-technical stockholders.

Income Statements

The TATA income statement tends to be more elaborate than CSEC. The rubrics for the both companies are changing in this point. The rubric of income statement for TATA is Profit and Loss Account, but for CSEC, it is Amalgamate Income Statement.

Under Indian AS 21, two old ages of figures which is one predating old ages ‘ comparative figures are required to be present in the TATAs study. Similarly in CSEC, there is one predating twelvemonth of figures in the income statement for comparative intent.

In TATA, the Statement of Comprehensive Income is non required harmonizing to the criterions but an analysis of disbursals was given in agenda 2. For TATA, Statement of alterations in equity were non required harmonizing to the criterions but the inside informations of the motion in portion capital, retained net incomes and other militias were shown in a separate agenda. The statement of recognized addition and losingss is shown as portion of the militias. but Statements of Changes in Equity was presented in CSEC study after their amalgamate net income and loss statement.

Cash flow Statements

Merely companies listed on Indian stock exchanges and non-listed endeavors whose turnover exceeds Rs. 500 million are required to supply hard currency flow statements. The hard currency flow statement besides requires the two old ages of figures in the income statement in TATA.

There are three chief headers in the statement which are runing, puting and funding. The CSEC ‘s statement is started with net income before. Similarly, the TATA ‘s statement, the hard currency flow statement started with the net income before revenue enhancement, and so revenue enhancement is non shown as a usage of hard currency.

Property, Plant and Equipment ( PPE )

In TATA, they Do non utilize the term Property Plant and Equipment alternatively uses the term Fixed Assets. They use both the consecutive line method and cut downing balance method harmonizing to AS 6 and AS 10. Harmonizing to agenda J, there are different rates of depreciation rates for different classs of plus. Subsequent outgo associating to an point must be added to the transporting sum of the plus when it is likely that future economic benefits, transcending the original criterion of public presentation, will flux to the entity. The cost of a major review or inspection and repair happening at regular intervals is capitalised where it is identified as a separate constituent of the plus and the replaced constituents are to the full.

Similarly, In CSEC, PPE are stated in the balance sheet at cost or rating sum less accrued depreciation and impairment losingss. Valuation sum represents the value of the assets adjusted to the accounting record based on the rating carried out in conformity with China Accounting Standards.

Damage of Goodwill

In TATA, they estimated the utile life ( harmonizing to the criterion, usually non transcending 5 old ages unless a longer period can be justified ) and amortised consequently. In TATA, the good will is originally recognised as an plus at cost and is accordingly calculated at cost subtraction any accrued loss of damage. The arising of good will on acquisition of a subordinate is when acquisition cost excess the group involvement in the net just value of the subordinate ‘s identifiable assets, and contingent liabilities recognised at the acquisition day of the month.

In CSEC, Goodwill is non amortised and is stated at cost less accrued damage losingss. On disposal of an plus group or a set of plus groups, any attributable sum of purchased good will is included in the computation of the net income or loss on disposal.

Employee Benefits

In TATA, they have 3 employee benefit programs: Post-employment benefit programs, Short-term employee benefits and Long-term employee benefits. Harmonizing AS15, TATA is charged as disbursals for the part made to retirement benefit programs. The payments are made to cover with as payments to specify part programs where the duties of Group under the programs are tantamount to those originating in a defined part retirement benefit program. This can be seen from agenda J, ( N ) .

In TATA, they have 4 employee benefit programs: Housing fund and other societal insurances, Retirement benefits, Share-based payments, Termination benefits. This can be seen in Notes Pt.3 ( m ) .

Auditor ‘s study

The study of hearer is of import information for the fiscal studies ‘ reader. The hearer ‘s study ( Appendix ) of CSEC which the key words are “ conducted our audit in

conformity with China ‘s Auditing Standards for the Certified Public Accountants… . the fiscal statements comply with the demands of China Accounting Standards for Business Enterprises ( 2006 ) issued by the Ministry of Finance of the People ‘s Republic of China and present reasonably, in all stuff respects ” .

Unlike CSEC, the hearer study for TATA ( Appendix ) the words were ” conducted our audit in conformity with auditing criterions by and large accepted in India… … in the mode so needed and give a true and just position in conformance with the accounting rules by and large accepted in India ”

It is impossible for the readers of CSEC one-year study to to the full understand of the significance of the words ‘ signifiers without set abouting a item analysis of jurisprudence instances in which they have been interpreted. However, the TATA study may reflect a greater trust than CSEC on important literature.

Need for uniting describing policies and methods

This subdivision of the paper discusses the factors that are act uponing the current move towards international convergence.

Addition in the globalization of concerns

The figure and size of “ transnational corporations ” ( MNCs ) looking outside their national boundary lines for investing and trade chances has increased over recent old ages. These MNCs favour the application of consistent accounting criterions so that comparings can be made between the public presentation and fiscal places of internal concern units and those of viing MNCs.There has besides been a immense addition in cross-border minutess. It is good to stockbrokers, analysts and investors if the fiscal studies they use to do investing determinations apply consistent accounting criterions and are hence comparable.

Recent moving ridge of corporate prostrations

The recent moving ridge of corporate prostrations in the US, including big administrations such as Enron, has led to a lessening in public regard for accounting. The doubtful accounting that occurred in these instances, which was allowed under the accounting criterions in the US was partially blamed for the prostrations. There could be another moving ridge of prostrations some clip in the hereafter, and if critics decide to put some of the incrimination on accounting criterions, so this unfavorable judgment could be partially deflected off from the national criterion puting organic structures, such as the IASB.

Enhanced fullness and comparison

The of import demand for convergence is that fiscal coverage patterns between states become the same, and differences in methods of accounting for minutess and events are eliminated. This will ensue in published fiscal information about companies runing in different states being comparable. This is going progressively of import as the figure of MNC additions and investors take a more planetary attack to puting. Increasing the comparison of fiscal information should help in the free flow of capital around the universe to where it is best utilise to derive the best consequences.

Cost Savingss

Another demand of uniting the criterions is that the acceptance of IASs may be a cheaper path for some developing states than fixing their ain criterions. It may besides be good to domestic and foreign companies with international connexions that do concern in these states. A figure of developing states, such as Pakistan and Nigeria have benefited from the acceptance of IASs with small or no amendments as their national criterions.


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