Running Head: Accounting Reforms in China
Research Case 1-5: Institutional Factors Influencing China’s Accounting Reforms and Standards
Michael Grice
Liberty University
Natural Sciences and Accounting
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Running Head: Accounting Reforms in China
The article “Institutional Factors Influencing China’s Accounting Reforms and Standard”
written by Bin Xiang is available in the Jerry Falwell Library, which is where I accessed an
online copy of the article. In the article, Xiang, who is an assistant professor at the University of
Hong Kong, describes and discusses various accounting reformations that have taken place in the
China marketplace and what type of and how far reaching the implications of these reformations
are. One of the major points presented and discussed by Xiang is one that favors the reformations
that took place in China, as he asserts this will allow China’s market to become easier to interact
with on an international scale and will involve complying with International Accounting
Standards, which most major, developed nations already recognize (Xiang, 1998). After
reviewing the remaining content within the article, it appears that the Chinese did opt to adopt a
select number of account principles, which has allowed the country’s accounting landscape to
experience a transition, where it now more closely resembles one of western approach and one
that aligns more closely with International Accounting Standards. Although one of a western
viewpoint would consider this an advancement, it appears that Xiang considers this to be a loss
for China, who should design their own set of Generally Accepted Accounting Principles
(GAAP) to fit the need of the country, where the economic marketplace is heavily dominated by
industrial factories, as the author believes there is a significant degree of separation between
ownership and control, which will allow for transparent reporting.
After reading the article by Xiang, I researched some of the accounting principles that
were actually adopted by the country of China and how their adoption may have impacted the
Chinese marketplace. I found an excellent article that outlined some of the principles that were
adopted by the Chinese from the year 1970 moving forward (Lin 2000). This article asserts that
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Running Head: Accounting Reforms in China
China was reluctant to conform to International Accounting Standards; however, the Chinese
Government agreed to issue nine accounting standards between 1997 and 1999 (Lin 2000).
These Standards that were issued proved to benefit public practitioners and also promoted the
auditing standards that had been issued to date. These reforms were furthermore meant to
encourage the consistent, fair reporting of accounting data for companies and factories, as well as
to ensure this data was available to various user groups and not strictly limited to entities who are
internal to companies or government officials. Lin also details that China has recognized the
importance of adopting these reforms as a means to prevent or mitigate the effects of a financial
crisis (Asia suffered a financial crisis in the late 1990s, where China remained unharmed and
they recognized the need to preserve their economy). The adoption of these accounting standards
led to normalized reporting and making this reporting available to the public – the data was no
longer skewed to overstate company assets and minimize company liabilities; thus with these
reforms, the public – and the world – was able to see a clearer picture of what the Chinese
economy was like.
Although most would believe adapting to standards that are accepted internationally
would be an incredible win for a country and it’s economy, Xiang argues the opposite is true.
Inherently, it appears Xiang truly agrees that international accounting standards are a benefit to
the worldwide economy and that of each participating country, he argues that the adoption
process would be what would hurt the Chinese market. He argues that the Chinese marketplace is
inherently different from those who have already adopted and are operating in accordance to the
IAS. Xiang states that a striking characteristic of the Chinese financial landscape is the lack of
professional and independent auditors. Xiang ultimately argues that adopting international
Accounting Standards will not be fruitful to the Chinese, as they do not have the infrastructure or
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Running Head: Accounting Reforms in China
personel in place to audit financial records and activity and building a working base of auditors
will only disrupt the economy and prove to be a pain point for the Chinese (Xiang, 1998).
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Running Head: Accounting Reforms in China
References
Lin, Z. J., & Chen, F. (2000). Asian financial crisis and accounting reforms in china.Managerial
Finance, 26(5), 63-79.
doi:http://dx.doi.org.ezproxy.liberty.edu/10.1108/03074350010766684
Xiang, B. (1998). Institutional factors influencing china's accounting reforms and
standards. Accounting Horizons, 12(2), 105-119. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/208911562?accountid=12085
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