USASBE 2008 Proceedings - Page 0558
Government policies and procedures can also play a hand in accounting practices. In 2005, the Chinese government decided to implement measures to converge their systems with the International Financial Reporting Standards (IFRS). On February 2006, China’s Ministry of Finance released new accounting guidelines for companies. These new standards take effect in 2007 (KPMG Primer, 2006).
Many Chinese managers are making efforts to implement international accounting standards (Miller, 2001). While the standardized guidelines and framework of Generally Accepted Accounting Principles (GAAP) exists in China, implementation challenges abound. Accounting system enhancements are needed to aid in implementation (Chen et al, 2001).
A confluence of other operational business issues affects the accounting practices in China. For instance, 1) there exists a shortage of trained practitioners resulting from the adoption of international standards, 2) partnerships and networks drive the conduct of business, 3) trust- building is critical, 4) goal mutuality among business associates is deemed important, and 5) the business landscape is constantly evolving.
The accounting system in China is in a state of flux. 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. The authors have identified twelve (12) significant accounting issues that are important for entrepreneurs to consider. These issues are presented in Table 1.