Examine the Advantages and Disadvantages for China of Harmonization of Accounting Standards Under the Current Economic and Social System
Question: Examine the advantages and disadvantages for China of harmonization of accounting standards under the current economic and social system.
With the development of economic globalization and capital markets, accounting standards based on a national system cannot satisfy the needs of users whose decisions are increasingly international. Therefore harmonization of accounting standards has become an inevitable choice for many countries. The Chinese government has introduced four sets of accounting standards and efforts continue to be made to bring its domestic accounting standards in line with international accounting standards, as a result of which numerous benefits have been brought about by the harmonization of accounting standards for China. However, due to China’s unique economic and social system, certain problems have also arisen. This essay will evaluate the advantages and disadvantages of harmonization of accounting standards for China. Specifically, the essay will address the issues of: quality and credibility of accounting information, the participation in economic globalization, technological innovation, cost, chaotic management and damage to national interests.
The improvement of quality and credibility of Chinese accounting information is the most obvious advantage brought about by harmonization of accounting standards. The harmonization of accounting standards makes Chinese accounting standards similar to those used in market based economy, rather than as a method of implying macroeconomic plans, contributing to the uniformity in financial reports, consistency and comparability in the data between and within enterprises. Furthermore, more comparable and understandable accounting information can be produced by the convergence of accounting standards, which in turn helps international investors and creditors to make correct and efficient economic decisions about global concerns (Turner1983; IASC 1989; Wyatt 1989; Beresford 1990, cited in Ge
With the development of economic globalization and capital markets, accounting standards based on a national system cannot satisfy the needs of users whose decisions are increasingly international. Therefore harmonization of accounting standards has become an inevitable choice for many countries. The Chinese government has introduced four sets of accounting standards and efforts continue to be made to bring its domestic accounting standards in line with international accounting standards, as a result of which numerous benefits have been brought about by the harmonization of accounting standards for China. However, due to China’s unique economic and social system, certain problems have also arisen. This essay will evaluate the advantages and disadvantages of harmonization of accounting standards for China. Specifically, the essay will address the issues of: quality and credibility of accounting information, the participation in economic globalization, technological innovation, cost, chaotic management and damage to national interests.
The improvement of quality and credibility of Chinese accounting information is the most obvious advantage brought about by harmonization of accounting standards. The harmonization of accounting standards makes Chinese accounting standards similar to those used in market based economy, rather than as a method of implying macroeconomic plans, contributing to the uniformity in financial reports, consistency and comparability in the data between and within enterprises. Furthermore, more comparable and understandable accounting information can be produced by the convergence of accounting standards, which in turn helps international investors and creditors to make correct and efficient economic decisions about global concerns (Turner1983; IASC 1989; Wyatt 1989; Beresford 1990, cited in Ge