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This study put the accounting development in China into position. Describe the history and alterations in the accounting environment of China during the recent economic reforms by utilizing the Grey ‘s ( 1988 ) accounting value to analysing the civilization impact on accounting system ‘s development in China, and so, illustrate the institutional and environmental factors which driven China ‘s accounting system made alterations, the grounds of those alterations and so describes the major job in China ‘s accounting development every bit good as to indicate out whether would be alterations in the hereafter.


This study is aim to depict the development of accounting system in China, including the history of China ‘s accounting except Hong Kong, the ‘one state, two systems ‘ policy allowed Hong Kong remain its market-led capitalist system. Then, it would depict the traditional usage of accounting and the factors that influenced China ‘s accounting development every bit good as what the alterations it has made what the major jobs that China has face in developing the accounting system. Then, it would discourse whether China would hold farther alterations of accounting system in the hereafter in my sentiment. There has a decision in the terminal.

State profile

China had more than 1.34 billion population at the terminal of 2010. National Bureau of Statistics ( NBS ) announced China ‘s GDP making 39.79 trillion kwais ( about 6.04 trillion US dollars ) over the class of 2010. ( Du Xiaodan, 2011 & A ; Paul Pennay, 2011 )

2. Brief history of China ‘s accounting

Harmonizing to Zhang Guohua ( 2005 ) , China ‘s economic system has undergone three periods of alteration since 1949: 1949- 1978: a socialist, centrally controlled, planned economic system. 1979- 1992: socialist trade good economic system. 1992- nowadays: socialist market economic system. China ‘s accounting system has changed with the economic system, about like the period of the China ‘s economic system. Development of accounting systems can by and large be divided into the four phases: ( more elaborate information of China ‘s accounting history can be found in Appendix 1. )

1949-1978 was the first phase which the “ unvarying accounting system ” and the 1978-1992, China ‘s accounting system has during the passage and the building. Then, from 1992 to 1997, the building of a new accounting system has issued. The 4th period is from 1997 to show. The ASC was set up in October 1998 by the Ministry of Finance to supervise the development of a complete set of Chinese GAAP. In order to fall in in the WTO, China ‘s accounting criterions made some alteration to closer to IFRS/IASs. The new Chinese Accounting Standards were adopted by all listed companies from 1 January 2007. Chinese Accounting Standards will go on to be updated in line with IFRS developments. ( Grey et Al, 1995 & A ; Wang Baozhong et Al, 2009 & A ; Zhang Guohua, 2005 & A ; The Institute of Chartered Accountants of Scotland, 2010 )

Traditional usage in China

The basic map of fiscal accounting is to accounting and monitoring. With the initiation of the PRC in 1949, all resources of production in the state came under State ownership. Accounting was chiefly used for set uping information and coverage system for the execution of national economic policies and resource allotment in the planned economic system. ( InterChina, 2009 ) The aims of fiscal coverage system have been stated to function one user chiefly, the authorities, and so it is stated really loosely “ to beef up accounting work of portion endeavor, to protect the legitimate involvement of investors and creditorsaˆ¦ ” ( Ministry of Finance, 1992 ) .The alteration in industry and ownership specific accounting system is due to the demand of macroeconomic planning necessitate a unvarying system. ( Tang, Qingliang, 2000 ) During the development of accounting system, there are a figure of users makes usage of accounting in different intent. Such as Stockholders use histories to analyze the wellness of concern, and the dividends that they can anticipate to do. The bank may utilize the history to see how much loan they would supply for the company, and authorities would see the how much revenue enhancement the company needs to pay. The chief usage for accounting is to follow with legal and other demands, to supply information for stakeholders about fiscal public presentation and viability, to supply directors with information for determination devising and to supply a construction to concern activity based on the careful processing of numerical informations. ( The Times 100, n.d )

The cultural factor that influenced its development

The development of accounting was influenced by both cultural and environmental factors. They shape the accounting system in China. As Merino ( cited in Carnegie and Napier, 2002 ) mentioned, “ All beginning stuff must be viewed as a contemplation of the civilization. ” The passage from a “ communist ” economic system to a “ capitalist ” market economic system can sum up as contributed by the factors as politic, civilization, every bit good as the reform of societal and economic or regional and international integrating. Before economic reform, China ‘s communist civilization ( See appendix 2 ) has strongly influence all the agencies of accounting control, whether accounting programs, balance sheets, and income statements or, in a wider sense, audit techniques. ( Cigdem Solas and Sinan Ayhan, 2008 ) all the excesss were owned by the province. A tabular array ( See appendix 3 ) summarizes the information on the difference between capitalist and communist systems, and issues raised for scrutiny sing their contemplation in accounting. The passages of the civilization and economic system reform were both influence the accounting system in China. For illustration, the construct of net income is nonmeaningful under communist civilization due to the panned economic system which the excess goes to authorities. In capitalist economy civilization, the economic entity would necessitate to hold a certain type of boundary ; the net income is one of its consequences. Particular regulations for payment of the assorted parties involved would besides be required, and pecuniary appraisals of economic flows registered would hold to be at least partially based on market mechanisms. Its position as a measuring of a individual entity ‘s public presentation presumes that there is a capacity for free endeavor do non bing in communist economic constructions. Grey ‘s ( 1988 ) theoretical account derived accounting values from surveies of social value dimensions by Hofstede ( 1984 ) , and Grey ‘s theoretical account has been used to analyze the cultural impact on accounting development in China.

4.1 Professionalism V Statutory

China ‘s accounting system is strongly controlled by province instead than professional. The province closely controlled all endeavors by centralised programs. The profession is besides still comparatively new, little and powerless and it is presently occupied with the jobs involved in run intoing the new audit demands. And it is improbable to give up this power to a professional organic structure so far. ( Roberts, Weetman and Gordon, 2008 ) This is chiefly because the strong power distance in China. In China, power is undisputed, no affair it is right or incorrect, the comptrollers in China can non trust on their professional position.

4.2 Uniformity V Flexibility

Due to the particular fortunes, China has a double attack which retained a unvarying accounting system in the Accounting System for Business Enterprises ( ASBE ) while besides developing accounting criterions based on IFRS. Enterprises have no judgement at all on how to account for peculiar minutess or events harmonizing to the unvarying system. ( Roberts, Weetman and Gordon, 2008 ) It is merely as the same as the statutory in China, the comptrollers has been regulated by the unvarying accounting ordinance, they have to make as the ordinance told to.

4.3 Conservatism V Optimism

The accounting system in China is conservativism instead than optimism. The Accounting System illustrate that an endeavor should carry through the demands of the prudence construct. Including, an endeavor should non exaggerate assets or gross, or understate liabilities or disbursals. It should non supply for any concealed modesty. ( Roberts, Weetman and Gordon, 2008 ) which means China ‘s accounting system has high degree of uncertainly turning away. Chinese authorities likes to be after everything in progress merely the “ five old ages program ” , they do non desire to see something go on unexpected due to the complex state of affairs.

4.4 Secrecy V Transparency

China ‘s accounting system has extremely secrecy due to the big power distance and strong unsure turning away. The collectivized civilization of China require the endeavor offer their information to the society but within a scope of narrative revelation which stated in ASBE 2001. ( Roberts, Weetman and Gordon, 2008 ) merely related people can see the accounting information such as the directors, stockholders and the authorities officers. This characteristic is due to China ‘s prudent civilization, it is different as the western state but it is wholly consistent with China ‘s state of affairs.

4.5 Problems for utilizing the Grey ‘s theoretical account

There have some jobs by utilizing either Hofsteade theoretical account or Grey ‘s theoretical account to analysing China ‘s state of affairs. Those theoretical accounts has been stated many old ages ago, in add-on, China is rapid development in every facets those old ages, hence, the theoretical account may non be 100 % appropriate with the state of affairs today. Another job is China is truly large ; there has immense spread between west country and east country no affair in economic system or civilization.

Institutional and Environmental factors

There are several environmental factors which influence accounting system in China.

Economic and endeavor reforms have influence the fiscal studies by alteration of the contents, format and utilizations. Enterprises in China are no longer trusting on fund appropriation alternatively of independency in their operational and funding activities. Banking and funding system has restructured, hence, the function of the province as a beginning of financess has been reduced. ( Tang, Qingliang, 2000 ) Furthermore, assorted signifiers of concern combinations with joint ownership have emerged ( Tang et al, 1992 ) . The stiff, fund-orientated and industry/ownership specific fiscal coverage system and patterns are no longer well-matched the altering concern environment. As a consequence, a cosmopolitan and user-oriented fiscal coverage system is necessary to run into the demands of the economic reform. Due to the economic factors, the Aims of Financial Reporting has made some alteration every bit good as the Industry and Ownership Specific Accounting System.

Furthermore, foreign investing started to act upon China ‘s accounting system since the open-doors policy. The increasing of foreign direct investing and international concern dealing driven China alter its accounting system close to international accounting and describe criterion. ( Tang, Qingliang, 2000 )

The legal factors have been influenced by other factors. The authorities system is one of the legal factors. The new accounting ordinance system ( See Appendix 3 ) is being developed towards a legal 1. The National People ‘s Congress issued the first grade accounting jurisprudence in 1985 and revised in 1993 and 1999. It is the basic jurisprudence of accounting in China every bit good as the footing of China ‘s accounting work and other related accounting ordinances. The State Council and Ministry of Finance formulated 2nd tier- the executive ordinances which form conceptual model and general rules of accounting. The 3rd grade authorized by the PRC Accounting Law and formulated by the Ministry of Finance. ( Zhang Guohua, 2005 ) The legal model for China ‘s accounting system and coverage criterions have changed measure by measure to carry through the demand of economic system development.

Another drive force for the accounting alteration is the development of capital market.

In 1990 and 1991, the Shanghai Stock Exchange and Shenzhen Stock Exchange were established. The development of capital market has influenced Chinese accounting alteration toward to a capital market-oriented system. Therefore, the construction, content, format, and revelation of fiscal information have been significantly influenced by the demands of the capital market. ( Tang, Qingliang, 2000 )

Problems occurred in development

There besides appeared some job during the China ‘s accounting system ‘s development and passage into international accounting criterion. First is that Chinese accounting system and IAS necessitating different patterns ; for illustration, stock list must be valued at historical costs under Chinese GAAP, but at the lower of cost and market ( LOCAM ) under IAS. Another illustration is accounting for long-run investing. Chinese GAAP offers companies a free pick between cost and equity methods if their investings in portions do non transcend 50 per centum. But in other words, differences between China ‘s accounting system and IAS can be reduced by altering accounting criterions. ( Charles J. P Chen, Ferdinand A. Gui and Xijia Su, 1999 ) Second, to execution of IAS requires professional judgement from direction every bit good as hearers. Professional independency and implement of criterions have been identified as the two critical issues in international auditing. ( Stamp and Moonitz, 1982 ) The terrible deficit of qualified comptrollers and hearers in China delay the development of professional auditing ( Winkle et al. 1994 ; & A ; Graham 1996 )

Further alterations

The development of China ‘s accounting system needs to suit China ‘s particular circumstance. It is impossible to anticipate independent/professional auditing to be accomplishable in China in the hereafter. This implies that the proposed accounting criterions will hold to run without independent/professional auditing. It is likely that the flexibleness in the elaborate accounting criterions will supply chances for directors to prosecute in aggressive net incomes direction, cut downing, even extinguishing the chance of demoing “ a true and just position. ” Therefore, the deficiency of independent/professional auditing can neutralize the aim of prudence and turn the flexibleness into a “ land of chances ” for net incomes development. ( Bing Xiang, 1998 ) In my sentiment, there has a tendency, which the China ‘s accounting system would somewhat alter towards to the international accounting system in the hereafter, but would ne’er be precisely the same with the international accounting system because of China ‘s particular circumstance like one-party policy, different state of affairs in different country, immense power distance and non so easy to pull offing the large land of China.


In decision, China has undergone profound alterations in recent old ages, non merely the economic system but besides the accounting criterions. China has moved from a system of public ownership of all endeavors to a assorted system with increasing private ownership of both little and big companies. There have many factors such as cultural and institutional factors which led to those alterations every bit good as some job which hold the alteration back, but China ‘s accounting system would still alter towards to the IAS due to the demand of economic development.


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Appendix 1

History of accounting system ‘s development in China

China ‘s accounting history can be traced back 2000 old ages ago. The word “ accounting ” foremost appeared in Western Zhou Dynasty i??11th century BC to 770 BCi?‰ . During the Tang Dynasty ( AD 618-907 ) , “ Account book ” appeared for entering the one-year financial grosss. The basic traditional Chinese accounting theory such as the scientific clerking method and the four pillars histories was created in Song Dynasty ( AD 960-1279 ) . A new method called “ Long Work force Zhang ” which is similar to the double-entry clerking method has created in Ming Dynasty ( AD1369-1644 ) . Single-entry clerking has been used in prior to 1911. ( Zhang Guohua, 2005 )

Since 1949, Development of accounting systems can by and large be divided into the four phases:

First phase is from 1949 to 1978: 1949-1952 a incorporate accounting system of attached endeavors was developed by the cardinal authorities. 1958-1959, the accounting system has been badly damaged by the “ Scholasticism ” thought, some people claimed to simplify the accounting system. 1960 to 1966, due to economic development, people realized the importance of accounting. Critical theoreticians illustrated the mistake attack of simplify the accounting system, so, the accounting system design work has received attending. Furthermore, the industry-specific ordinance has been issued. ( Grey et Al, 1995 & A ; Wang Baozhong et Al, 2009 & A ; Zhang Guohua, 2005 )

Second phase is from 1978 to 1992: China ‘s accounting has undergone drastic alterations due to the opening-up and beginning of reform. 1979-1922, Enterprises started to publish equity portions in 1984. The figure of Sino-foreign joint venture has increased ; Ministry of Finance has issued the “ Laws on Sino- foreign Joint Venture ” to work out the job of hard of foreign staff in accounting and utilize the accounting information. These included a joint venture income revenue enhancement jurisprudence and Torahs on contracts and foreign exchange. ‘Accounting Regulations for Sino-Foreign Joint Ventures ‘ and ‘Charts of Account and Accounting Statements for Industrial Sino-Foreign Joint Ventures ‘ has issued in 1985 which is the first accounting system mention to international conventions to fulfill the new accounting system in China. ( Grey et Al, 1995 & A ; Wang Baozhong et Al, 2009 & A ; Zhang Guohua, 2005 )

Third phase is from 1992 to 1997: Ministry of Finance and the National Committee of Economic Structure Reform jointly promulgated ‘Accounting Regulations for Share Enterprises ‘ in 1992. Furthermore, ‘Accounting System for Business Enterprises ( ASBE ) issued in November 1992. The ASBE was a major effort both to unite the accounting systems used by different industries and to travel fiscal accounting towards international accounting patterns. Because of the development of foreign exchange markets, these ordinances which made in 1985 were replaced by ‘Accounting Regulations for Enterprises with Foreign Investments ‘ and ‘Charts of Histories and Accounting Statements for Industrial Enterprises with Foreign Investments ‘ in 1993. ( Grey et Al, 1995 & A ; Wang Baozhong et Al, 2009 & A ; Zhang Guohua, 2005 )

The 4th phase is start from 1997 to show: the Accounting Standard Committee issued to set uping a complete set of accounting criterion. The Accounting Law of the PRC which revised in 2000 is the highest degree of authorization which replaced the pervious jurisprudence of 1992. ( Grey et Al, 1995 & A ; Wang Baozhong et Al, 2009 & A ; Zhang Guohua, 2005 )

Appendix 2

( Beginning from: Cigdem Solas and Sinan Ayhan, 2008 )

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