The Convergence In Practice Of New Chinese Accounting Standards With IFRS&Accounting Quality

The new Chinese Accounting Standards (CAS) was published by the Ministry of Finance of the People’s Republic of China on15th February,2006. By2007, all listing companies were required to use the new CAS when preparing financial reports. On8th November2005, China Accounting Standards Committee (CASC) and the International Accounting Standards Board (IASB) have issued a joint statement to confirm the convergence of CAS with IFRS.Based on the results of T-tests, I conclude that the financial data prepared under CAS is not equal to those prepared under IFRS, so the substantial convergence of new CAS with IFRS has not been achieved. The different institutional environment between Mainland China and Hong Kong may affect the result. From the financial data of all listing companies on A share market from2002to2010,I find that accounting quality has generally been improved after the application of new CAS. Less earning smoothing, less earnings manipulation towards positive net income and more timely loss recognition is detected in the post-adoption period. But result of market value relevance is obscure. To eliminate the influence of long time span and financial crisis, a comparison involving only2005and2007is carried out. No significant accounting quality improvements have been detected in year2007. Results from comparison of accounting quality metrics between the new CAS and IFRS show that IFRS reports provide higher accounting quality in aspects of timely loss recognition and value relevance, both are statistically significant.