A Comparison Of Accounting Quality Under IFRS And CAS

The new Chinese accounting standards (CAS2006) are perceived to be convergent withlFRS despite some minor differences still exist. Here, we examine whether the adoption of this substantial-convergent accounting standards make the accounting quality of Chinesefirms listed in domestic market stand close to those inforeign developed market. Metrics measuring four dimensions of accounting quality are compared here.i.e. earnings smoothness, target beating (earnings management towards small profits), timely loss recognition and value-relevance of accounting amount to stock price or stock return. Using samples of Chinese firms listed in both Chinese market and USmarket of the year 2011, we found mixed evidence. Chinesefirms listed in US market under IFRS exhibit less earnings smoothness, fewer target beating behaviors and more timely loss recognition than firms listed in Chinese market under CAS, which is the evidence of better accounting quality of IFRS. However, the value-relevance of accounting amountto stock return under IFRS tends to be weaker than that under CAS. The overall evidence is mixed and we cannot infer that one accounting standards is absolutely overwhelming the other one. The difference between CAS and IFRS firms may also result from the difference from legal environment, effectiveness of equity markets and macroeconomic.There still seems to be some differences between these two accounting standards.Generally, to reach the substantial convergence with IFRS is always an important issue in China to continuously improve the decision usefulness of accounting information for decision-makers throughout the world.