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USASBE 2008 Proceedings - Page 0555 - page 2 / 23





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USASBE 2008 Proceedings - Page 0556

This paper specifically addresses the impact of the differences between PRC accounting practices compared to USA accounting practices in four areas: revenue recognition, transfer pricing, income taxation, and cash flows. Revenue recognition differences promote confusing ratio analysis results and diminishes the ability of the entrepreneur to make informed decisions. Transfer pricing issues reveal the opportunity for in-country partners to acquire a share of wealth that is in excess of the terms of the partnership. Income taxation addresses the need to go beyond acquiring tax law knowledge and to conduct careful industry analysis concerning the tax status of competitors. Cash flow issues speak to the need for quick, reliable accounting information that can be used as a quasi-internal audit of the cash sources and uses, and data for meaningful ratio analysis related to the venture.

The Accounting Implementation Time model develops a structure for the entrepreneur to evaluate accounting information for decision-making purposes. By understanding the complexities of the accounting system in Chine, some of the risks encountered by entrepreneurs who embark on ventures in China may be reduced.


Globalization has accelerated business interactions and facilitated capital flows across countries (Greenberg and Baron, 1997:37). The contemporary business environment is characterized by (1) lower transportation and communication costs arising from sprouting technologies, (2) trade liberalization across several fronts, and (3) more aggressive business endeavors in both developed and developing countries that has led to expanding exports and cross-border foreign direct investments. This trend has consequently spearheaded economic growth and competitive activities worldwide (Greenberg and Baron, 1997:37).

In the case of the USA and the PRC, trade across countries has expanded dramatically in recent years. The USA is China’s largest export destination accounting for 21.4% of the country’s total exports. In 2006, China exported a total of $974 billion dollars worth of products and services (CIA World Factbook, 2007). China imported a total of $777.9 billion worth of products

and services in 2006, with the USA as one of its largest import sources.

Global investments are pouring heavily into China. In the past three-years, private equity investment in China has increased by almost six-fold, reaching $3.1 B in June 2007 (Cho & Heath, 2007).

Globalization has shaped business practices both in the USA and in China. Chinese scholar Cai Tuo (1998) defined globalization as an “objective historic process and tendency of contemporary human development beyond nation-state boundaries, which is unfolding as global communication, global networks, and global interactions.” Based on an AC Nielsen 2003 online survey on 7,230 Asia-Pacific consumers, Dumlao (2003) reported that: (1) 86% of Asians believed that globalization was giving access to the same quality of products available to anyone else in the world, (2) 77% of Asians felt that globalization was creating more jobs and career opportunities, (3) 90% of Asians acknowledged that globalization was giving more access to news, entertainment, and information, (4) 64% of Asians are under the impression that

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