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USASBE 2008 Proceedings - Page 0555

ISSUES RELATING TO ACCOUNTING PRACTICES IN CHINA: IMPLICATIONS TO INTERNATIONAL ENTREPRENEURS

Richard Chamblin Millikin University, 1184 West Main Street, Decatur, Illinois 62522 217-425-4691 rchamblin@mail.millikin.edu J. Mark Munoz Millikin University Roy J. Hinkamper KPMG LLP

ACADEMIC ABSTRACT

As a result of heightened trade interest due to globalization, international entrepreneurs are actively exploring business opportunities in foreign locations such as China. Despite continuing advances, a common challenge faced by entrepreneurs is that financial systems and accounting standards are often different across borders. This article explores key accounting issues confronting entrepreneurs as they do business in China. In addition, strategies for success are offered.

EXECUTIVE SUMMARY

This paper is practitioner-oriented. The authors believe that the highlighted issues herein have direct implications in the conduct of business in China. There are several ways in which accounting divergence exists between China’s GAAP and the GAAP used in Western countries, specifically the US. This article highlights key areas where issues exist, and discusses its implications to entrepreneurs intending to do business in the People’s Republic of China (PRC).

The recent adoption of most international accounting standards appears to solve the problems of comparability and disclosure that has reduced the usefulness of Chinese financial reports issued to out-of-country stakeholders in the past. However, Chinese financial reporting still represents a troubling lack of consistency, reliability, timeliness, and full disclosure. These issues are coupled with important differences between PRC GAAP and US GAAP.

This paper provides entrepreneurs with some familiarity with the current business landscape in China by increasing the awareness of the key differences in accounting practices between the Peoples Republic of China (PRC) and the United States of America (USA). The paper provides the entrepreneur with the main reasons for the accounting and reporting differences, the key differences, and the effect on financial reporting. The paper also provides the entrepreneur with recommended actions to cope with these differences. Enhanced awareness of specific accounting and reporting differences can contribute to the reliability and transparency of information and improve the decision-making.

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