International accounting_4e Chapter 6
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Chapter 06 - Comparative Accounting
6-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education. CHAPTER 6
COMPARATIVE ACCOUNTING
Chapter Outline
China
I. There are some unique features in the accounting profession in China. They include the
following:
A. Until the 1980s, those who carried out accounting work were not held in high regard in
society, and this has had an adverse effect on the development of the accounting
profession in China.
B. Accounting and auditing in China have taken different paths in their development
processes. Auditing firms audited mainly domestic companies, and were under the
State Administration of Audit (SAA), whereas accounting firms focused on companies
using foreign investments and were sponsored by the Ministry of Finance.
C. Unlike in the U.K., where there was a good legislative and judicial environment during
the early stages of the development of the profession, in China,a market-oriented
legislative and judicial environment is still emerging.
D. Unlike in the U.K., where auditors receive support from the established professional
bodies, these support mechanisms are still lacking in China.
II. The recent economic reform program stimulated the growth of the accounting profession
in China.
A. With the recognition by the State of joint stock company form, the demands for
financial information from investors and other interested parties increased.
B. The establishment of two stock exchanges helped rapid growth of the accounting
activities.
C. Various government regulations on the implementation of economic reform measures
require the involvement of independent auditors.
D. The laws on joint ventures with foreign companies require the audit of annual
statements.
E. International accounting firms were allowed to be involved in training local auditors and
setting auditing standards.
III. There are clear signals that Anglo-American accounting principles are replacing Soviet-style accounting.
A. This was required as a result of the movement towards private ownership.
B. TheMinistry of Finance is following international accounting practices in setting
Chinese standards; a conceptual framework was promulgated in 1992 (The
Accounting Standards for Business Enterprises- ASBE), and the China
Accounting Standards Committee (CASC) was established in1988.The ASBE issued
in February 2006, whichreplaced the 1992 ASBE, and CASs previously issued,
became mandatory for all PRC listed companies in January 2007. The 2006 ASBE
adopted a significant number of the accounting standards laid out by the IASB.
Chapter 06 - Comparative Accounting
6-2
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education. C. The Chinese Security Regulatory Commission (CSRC) has improved
disclosurerequirements for companies. For example, it requires listed companies to
post their annual reports on the web site of the relevant stock exchange.
D. Both CSRC and the two stock exchanges have developed new corporate governance
rules basedon those that are common in Anglo-American countries.
E. The CSRC and Ministry of Finance, consistent with the Sarbanes-Oxley Act, require
auditor rotation every five years.
IV. Major differences between IFRSand Chinese GAAP include:
A. Accounting standards and practices in China lack conservatism.
B. There are no coherent interpretations of the relevant requirements.
C. In some areas covered by IFRS there are no specific rules in China, including
business combinations, impairment of assets, and the definitions of operating
andfinance leases.
Germany
I. Unique features in German accounting include:
A. The primary source of finance for German companies is bankloans ratherthan equity,
and this determines to a large extent thepurpose for financial reporting by companies.
B. Auditing dominates the financial reporting related professional activities.
C. The auditing profession is headed by the Chamber of Auditors, a State-supervised
organization.
D. The Commercial Code contains most of the German financial reporting principles, and
sanctions for non-compliance.
E. Unlike in the U.S., partnership accounting is regulated in Germany.
F. The principle of prudence (conservatism) is established in the law.
II. There are signs of a change in financial reporting from a creditor orientation towards a
shareholder orientation.
A. The Companies Act 1965 was the initiator of this change.
