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China's Convergence with IFRS: Analysis of Dual‐listed Companies
Author(s) -
Zhang Weiguo,
Ye Jianfang
Publication year - 2020
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/abac.12183
Subject(s) - accounting , international financial reporting standards , business , china , convergence (economics) , dual (grammatical number) , accounting standard , profit (economics) , accounting information system , financial accounting , economics , political science , microeconomics , art , literature , law , economic growth
This study investigates China's convergence towards International Financial Reporting Standards (IFRS) using generally accepted accounting principles (GAAP) differences data disclosed in AH‐share companies’ annual reports from 2006 to 2017. We firstly find that 92% of AH‐share companies disclosed GAAP differences in 2006, immediately prior to implementation of converged Chinese accounting standards (CAS). This ratio decreased to 88% in 2007, 58% in 2010, and 38% in 2011, respectively. After 2011, less than one third of AH companies disclosed GAAP differences. Secondly, an increasing number of AH companies (35%) have published CAS‐based financial statements in Hong Kong from 2014. Thirdly, except for the first few years after 2007, the disclosed GAAP differences have dropped to a very low level; since 2010 the net profit and net assets GAAP differences ratios have been below 0.5%. Fourthly, reduction of the disclosed GAAP differences appears to be the result of efforts by Chinese standard setters and regulators, work related to the International Accounting Standards Board, or changes in China's special socio‐economic environment. Distinct from word‐by‐word comparison between CAS and IFRS, this research shows that China has achieved its original goal, namely an enterprise applying CAS should produce financial statements that are the same as those of an enterprise that applies IFRS. Our findings provide insights regarding China's institutional evolution in terms of the country's IFRS convergence effort, which are useful for further empirical study.