The Accounting Law, final amended in
2000, addresses all enterprises and businesses, including those not possessed or controlled
by the condition. It outlines the general concepts of accounting and identifies the role of the
government and the matters that require accounting procedures. The State Council (a good
executive body corresponding to the cabinet) has also issued Financial Accounting and
Reporting Guidelines for Enterprises (FARR). These concentrate on bookkeeping, the preparation associated with
financial statements, reporting practices, and other financial accounting and reportingmatters. FARR apply to all enterprises other than very small ones that do not raise funds
externally. The Ministry of Finance, supervised by the State Council, formulates accounting
and auditing standards. Besides accounting and auditing issues, the ministry is
responsible for an array of activities affecting the economy. Generally, these activities
consist of formulating long-term economic strategies as well as setting the priorities for that
allocation of government money. More specifically, the ministry’s responsibilities consist of:• formulating and enforcing economic, tax, and other finance-related policies
- preparing the annual state budget and fiscal report
- managing state revenue and expenditure
- developing the financial management and tax system
Accounting and auditing matters fall into the last category.
In 1992 the Ministry of Finance issued Accounting Standards for Business
Enterprises (ASBE), a conceptual framework designed to guide the development of new
accounting standards that would eventually harmonize domestic practices and harmonize
Chinese practices with worldwide practices. The ASBE was a milestone event in China’s
move to an industry economy. Before the ASBE, more than Forty different uniform accounting
methods were in use, varying throughout industries and types of possession. Although each one
of these might individually be labeled as standard, taken together they led to inconsistent
practices overall. Therefore, one motive for giving the ASBE was to harmonize domestic
accounting practices. Moreover, current practices were incompatible with worldwide
practices and unsuited for any market-oriented economy. Harmonizing Chinese accounting
to international practices served to remove barriers of communication with foreign
investors and helped meet the needs of the economic reforms already under way.
After the issuance of the ASBE, the Ministry of Finance replaced the more than 40 uniform accounting systems mentioned previously with 13 industry-based and two ownership-based accounting systems. These systems were viewed as transitional until specific accounting standards could be promulgated that would apply to all enterprises operating in China. A revised ASBE was issued in 2001. The China Accounting Standards Committee (CASC) was established in 1998 as the authoritative body within the Ministry of Finance responsible for developing accounting standards.46 The standard-setting process includes assigning necessary research to task forces, the issuance of exposure drafts, and public hearings. CASC members are experts drawn from academia, accounting firms, government, professional accounting associations, and other key groups concerned with the development of accounting in China.
After it was formed, the CASC began issuing standards on such issues as the cash flow statement, debt restructuring, revenue, nonmonetary transactions, contingencies, and leases. All of these standards were targeted at converging Chinese accounting standards along with International Financial Reporting Standards.Finally, in 2006, in a Big Bang approach to convergence, a new set of Accounting Standards for Business Enterprises was issued. This new ASBE consists of one basic ASBE and specific ASBE. The basic standard established the framework, and the specific standards set out broad principles and detailed implementation guidance on such areas as fixed and intangible assets, inventories, leases, income taxes, consolidations, and segment reporting. Together they represent a comprehensive set of Chinese accounting standards that are substantially in line with IFRS. The new ASBE applies to all Chinese companies (except small ones), phasing out the industry and ownership standards referred to above. Forty-eight new auditing standards, similar to the International Standards on Auditing from the International Auditing and Assurance Standards Board were released at the same time. All Chinese sales firms and CPAs is required to follow these audit standards.
The actual China Securities Regulatory Fee (CSRC) regulates China’s two stock trades: Shanghai, which opened in 1990, as well as Shenzhen, which opened in 1991. It sets regulatory guidelines, formulates and enforces market rules, and authorizes initial public offers and new shares. A code of corporate governance was introduced in 2002. The CSRC also issues additional disclosure requirements for listed companies. Thus, disclosure requirements for listed companies are established by two government bodies, the Ministry of Finance and the CSRC.
Until 1995 China experienced two professional accounting businesses. The Chinese
Institute of Certified Public Accountants (CICPA), established in 1988 under the legal system
of the Ministry of Finance, controlled the audit of private-sector businesses. The
Chinese Association associated with Certified Public Auditors (CACPA) was accountable for auditingstate-owned enterprises and was under the authority of a separate agency, the State Audit
Administration. In 1995 CICPAand CACPAmerged, keeping the name of the CICPA. The
CICPA sets the requirements for becoming a CPA, administers the CPA examination,
develops auditing standards, and is accountable for the code of expert ethics.
