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USASBE 2008 Proceedings - Page 0555 - page 16 / 23





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USASBE 2008 Proceedings - Page 0570

Cash inflow from sales Cash outflow for inventory purchases Cash outflow for operating expenses Cash outflow for purchase of equipment Net decrease in cash from activities Cash required to increase cash balance

$60,000 -70,000 -40,000 -10,000 ($60,000) -10,000

Expected increase in debt


This paper is practitioner-oriented. The authors believe that the 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).


In evaluating the above issues, the authors have developed a model that may be helpful in identifying accounting-related activities in China that need specific attention. The authors call this model the Accounting Implementation Time (AIT). This model may be useful not only in China but in other emerging markets as well.

The AIT Model propositions that in the practice of accounting in China some activities have Short Implementation Time (SIT), while others have a Long Implementation Time (LIT).

SIT activities involve a large number of routine transactions that can be processed by existing technology. This translates into faster processing times and quicker delivery of information to the entrepreneur. SIT activities can be implemented with widely used technologies which do not require a large number of people or specialized skills.

LIT activities require expertly trained accountants to analyze and convert the information from PRC GAAP to US GAAP. The shortage of trained accountants coupled with the complex and non-routine nature of the transactions slows down the conversion process. Manpower resources must be specialized and require more planning and supervision.

The AIT Model proposes that both SIT and LIT shape entrepreneurial information needed for decision-making. However, greater attention and focus should be placed on LIT as they are more complicated to implement. Figure 1 illustrates this model.

The authors believe that entrepreneurs doing business in China need to understand the accounting issues confronting their venture. Utilizing the Accounting Implementation Time (AIT) Model can be useful in identifying priorities and determining key strategies. In addition, there are several ways in which accounting issues can affect entrepreneurial activities, the authors discuss some of the major challenges in the following section.

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