Study On The International Convergence Of Chinese New Enterprise Accounting Standards

With the issue of the new enterprise accounting standards system by China’s Ministry of Finance on February15,2006, which consists of one principle and38specific standards. It has replaced the previous one and was considered to be in a greater formal and substantial conformity with the International Financial Reporting Standards (IFRS). Being accepted by both the Hong Kong Institute of Certified Public Accountants and the European Union Securities Commission marked an impressive progress in realizing international equivalence of China’s accounting standards.While China’s unique market segmentation still requires firms which issued both A and H-shares to issue two sets of annual reports based on Chinese accounting standards and IFRS, audited by both domestic and foreign accounting firms. Whether China’s efforts to converge domestic accounting standards with International Financial Reporting Standards (IFRS) have resulted in the successful practice convergence of Chinese listed firms?To answer the above question, This study mainly evaluates convergence of both the accounting standards and firms’accounting practices from the below perspectives:(1) identification of significant differences in the net incomes, net assets and net operating cash flow produced under Chinese accounting standards and IFRS.(2) trend of the earnings quality under the Chinese accounting standards.(3) identification of significant difference in the earnings quality under Chinese accounting standards and IFRS by examining whether the association between current accruals, accounting earnings and future cash flows differ for H-share reporting under IFRS versus A-share reporting under China’s accounting standardsThis paper is organized as follows:section I provides the background, the structure and the research significance of this paper. Section Ⅱ presents related conceptions, the prior research and literature review. Section Ⅲ discusses the research design. Three hypotheses are put forward in this section, related research model and methods are then designed for each hypothesis respectively. Section Ⅳ and Section Ⅴ present the empirical results. Section Ⅵ provides a summary of the study conclusions, some political proposals and analysis of the limitation of this study.Using the2005-2010annual reports of Chinese listed companies which issue both A and H-share as sample, we find that China’s efforts to converge Chinese accounting standards with IFRS are successful in reducing the differences in the net incomes, net assets produced under Chinese accounting standards and IFRS, but not in reducing the net operating cash flow differences, we also find that there’s still significant difference in the earnings quality of the annual reports produced under Chinese accounting standards and IFRS, and the earnings quality under Chinese accounting standards doesn’t improve as expected, either.This study contributes to the literature in the following four perspectives:(1) we use firms which issue both A and H-share as sample rather that A and B-share listed companies which are no longer required to provide two sets of annual reports under both Chinese accounting standards and IFRS. A-and H-share sample would be more convincing in analyzing the present situation.(2) To get a more comprehensive conclusion in examining whether the implementation of new enterprise accounting standards has prompted the formal convergence of accounting standards, we add another significant variable, the net operating cash flow in the empirical research.(3) To evaluate the effects of the accounting practices convergence, this paper takes the earnings quality as the representative from the perspective of all the information users.(4) We control the effect of accounting firm type when analyzing the differences in the earnings quality under Chinese accounting standards and IFRS to make the results more reliable.