The relationship between China and the International Accounting Standards Board (and its related International Financial Reporting Standards) has been discussed here, with related comments from a former student here. Weiqing Liu, my former student, has made additional inquiries and comments further, as follows (reproduced with permission):
As a follow-up to the IFRS in China topic since our last exchange, I have posted to a large open forum dedicated as a discussion platform for CPA(China) students and professionals. There are many topics on this forum, but they tend to focus on the practical (application of existing standards) and not theoretical (discussion of the standard-setting process).
I have since consulted my uncle, who is a professor at North China University of Science and Technology, for his opinions. Although he teaches advanced mathematical topics, he is interested and well-read in finance and accounting topics. On my behalf, he approached his colleague, who is teaching in the accounting department, for his opinion on the use of IFRS in China.
The Chinese accounting professor’s opinion is very simple: IFRS is a gateway for China to align with the trends of globalization. This inherently leads to the arguments that IFRS can for China result in the following benefits:
( 1) Increase in the validity and value of the financial information presented in the eyes of foreign investors,
(2) Greater comparability to help Chinese companies better understand their position, relative to foreign companies,
(3) Greater ease of financial analysis and audit, which allows China to develop and expand its native financial services abroad and allow foreign service entry (one example being the expansion of the Big 4 audit firms into China).
One negative mentioned is that in the short term, a domestic company’s results may look worse applying IFRS and therefore be at a disadvantage in terms of obtaining financing, due to not being able to meet certain ratios.
On my own, I have also done some more searches on the internet for journal articles that provides a critical analysis of the impact of China applying IFRS, now and into the future. I have found an article published in 2007 in “Friends of Accounting”, a Chinese journal sponsored by the Shanxi Provincial Academy of Social Sciences (山西省社会科学院), that talks about the differences between existing Chinese standards and IFRS, as well as their future impact.
In his conclusion, the author, Rongqiang Li, then a professor at Shanxi University of Finance and Economics (and currently the board secretary, DMG Media Group) states that the differences between the two cannot be eliminated during the short-term. In the long-term, the convergence with IFRS may not be fulfilled to its maximum, due to fundamental differences between capitalist and socialist society, especially with regards to private versus public ownership. He, however, did not provide an opinion on whether the convergence should proceed or comment whether these differences will permanently exist, offering a rather hopeful prognosis. As this article was posted in 2007, I think some changes may have already happened in the Chinese economic environment. For example, China is rapidly developing into a pseudo-capitalist state, where the socialist-capitalist boundaries are becoming increasingly thin. Convergence with IFRS may occur more readily than predicted just a few years ago.