accounting reform and development in china feng shuping assistant minister, ministry of finance...
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Accounting Reform and Development in China
FENG ShupingAssistant Minister,Ministry of FinancePeople's Republic of China
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Reform and Development of Reform and Development of Accounting Practices in ChinaAccounting Practices in China
Feng ShupingFeng ShupingAssistant Finance MinisterAssistant Finance Minister
Ministry of Finance of the P.R.CMinistry of Finance of the P.R.C
®TopicsTopics
Administrative System of Accounting
Practice in China
The System of Accounting Rules and
Regulations in China
Opening up of Chinese Accounting
Services Market
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Administrative System of Administrative System of Accounting Practice in ChinaAccounting Practice in China
“Centralized Leadership and
Layered Administration”
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Responsibilities of financial Responsibilities of financial Departments Departments
Formulate and issue national unified accounting systems
Supervise and inspect the implementation of national
unified accounting systems
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Reduce formulating costs
Shorten formulating cycle
Implementation driven by
government authority
The Chinese Accounting The Chinese Accounting Standards Are Formulated Standards Are Formulated by the Government: Benefitsby the Government: Benefits
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Due Process of Accounting Standard Setting
Define agenda Draft research papers
(With consultancy provided by international accounting firms)
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Due Process of Accounting Due Process of Accounting Standard Setting Standard Setting
Draft discussion papers
Draft exposure drafts
(Extensive participation by stakeholders)
Promulgate (continued)
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Accounting Supervision and Inspection
Whether financial accounting
information is true
Whether financial accounting
information is complete
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Managerial System of Managerial System of CPA industryCPA industry
Institutes of CPAs are self-disciplinary
professional organizations
Financial departments conduct
supervision over and provide guidance
for CPAs, accounting firms and
Institutes
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Supervision and Guidance bySupervision and Guidance by Financial Departments Financial Departments
Formulate rules and procedures for
national unified examination of CPA
Maintain a register of certified public
accountants (continued)
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Supervision and Guidance by Supervision and Guidance by Financial DepartmentFinancial Department
Responsible for administrative review
Approve the establishment of
accounting firms
(continued)
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approve practicing standards and rules
proposed by the CICPA
Impose penalties on CPAs and
accounting firms for irregular practices
(continued)
Supervision and Guidance by Supervision and Guidance by Financial DepartmentFinancial Department
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Supervision and Guidance by Supervision and Guidance by Financial DepartmentFinancial Department
Review and approve applications from
foreign accounting firms to set up
institutions in China (the Ministry of Finance
has the sole authority to approve the
applications)
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Responsibilities of Institutes Responsibilities of Institutes of CPAsof CPAs
Organize national unified
examinations of CPAs
Process CPAs’ registration
(continued)
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Responsibilities of Institutes Responsibilities of Institutes of CPAs of CPAs
Propose and constitute practicing
standards and rules of CPAs (details
are conducted by the CICPA)
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The System of Accounting Rules The System of Accounting Rules
and Regulations in Chinaand Regulations in China
The Accounting Law of the People’s
Republic of China
Regulations on financial accounting
reports of Enterprises
Accounting standards and accounting
systems for business enterprises
®The Accounting LawThe Accounting Law
Set forth the basic requirements on the accounting practices of enterprises
®Regulation on financial accounting Regulation on financial accounting reports of Enterprisesreports of Enterprises
Specify requirements for financial Specify requirements for financial accounting reports in the Accounting accounting reports in the Accounting
LawLaw
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Formulated in accordance with the
Accounting Law and Regulation on
Financial Accounting Reports of
Enterprises
Formulated and promulgated by Ministry
of Finance (continued)
Accounting Standards andAccounting Standards andAccounting Systems for business Accounting Systems for business enterprisesenterprises
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Accounting Standards andAccounting Standards andAccounting Systems for business Accounting Systems for business enterprisesenterprises
Important parts of accounting laws and
regulations
Compulsory for applicable enterprises
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Development of Chinese Development of Chinese Accounting StandardsAccounting Standards
Refer to IASs
Have formulated basic standard as well
as 16 specific standards
(continued)
®Development of Chinese Development of Chinese Accounting Standards Accounting Standards
Chinese Accounting Standards are
consistent, or converge with IAS in
many aspects
®Convergence with IASConvergence with IAS The objective of financial statements –
meeting the needs of investors and creditors as well as management and government
The quality of financial information – especially relevance and reliability (continued)
®Convergence with IASConvergence with IAS Definitions of the elements of
financial statement are consistent with the IASB Framework
Asset, liability, equity, revenue, etc. Recognition and measurement
principles are generally similar to those in IAS (continued)
®Convergence with IASConvergence with IAS
The Chinese financial reporting system is similar to the financial report in IAS 1:
Same basic financial statements and note disclosures.
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We recognise the importanceWe recognise the importanceof serving the securities marketof serving the securities market
Our objective is to improve the quality of financial information, and
To reduce the need for adjustments: for example, minimise the adjustments
needed for B share or H share listings and for commercial bank listings within China for which IAS financial statements are required.
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Some inconsistencies between Some inconsistencies between IAS and Chinese standardsIAS and Chinese standards
Some inconsistence still exist: For example, cost or carrying
amount sometimes is used for measuring special transactions that IAS would measure at estimated fair value.
®Obstacles for ConvergenceObstacles for Convergence
China is still in the process of economic transition:Many related party transactions (many
enterprises are still state owned).Transaction prices are sometimes not
market prices.Special capital structures.
(continued)
®Obstacles for Convergence Obstacles for Convergence
lack of effective corporate governance Special structure of users of financial information:
Government is now the important investor and user of financial information.
A shortage of experienced financial analysts (continued)
®Obstacles for ConvergenceObstacles for Convergence
Some regulatory requirements of financial information focus on minimum past performance:IPO, profit for the past three years.For new issues after listing, weighted
average return on net assets should be 10% or higher for recent past three years, etc.
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Situations in other countriesSituations in other countries
These obstacles probably exist in other developing countries, especially those economies in transition.
Similar obstacles may exist in certain periods in developed countries.
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A sensible approach A sensible approach for China todayfor China today
On the one hand, take account of its realities, and
On the other hand, do its best to get in line with IAS/IAS.
Try to balance these two approaches in its work to improve financial reporting in China.
®Our objectiveOur objective
Build a core Chinese accounting standards system in about three years.
(continued)
®Our objectiveOur objective
Keep in line with IAS, except in cases where some IASs contradict with Chinese law, or obviously don’t suit Chinese realities.
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Opening of China’s Accounting Opening of China’s Accounting
Services MarketServices Market
China’s Accounting Services
Market already is widely
opened.
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Current approaches to Current approaches to Open Accounting MarketOpen Accounting Market
Allow foreign accounting firms to set
up representative offices in China
Allow international accounting firms to
develop Chinese member offices
(continued)
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Current approaches to Current approaches to Open Accounting Market Open Accounting Market
Allow overseas accounting firms to perform ad hoc auditing services in China
Allow Non-Chinese Nationals to take the Chinese national unified CPA examinations
(continued)
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Allow overseas members of
the CICPA to apply to register
as Chinese certified public
accountants
Current approaches toCurrent approaches toOpen Accounting Market Open Accounting Market
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Non-Chinese Nationals Non-Chinese Nationals Becoming Chinese CPAsBecoming Chinese CPAs
Pass the national examinations
get registered as a Chinese CPA
according to relevant stipulation
(continued)
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Non-Chinese Nationals Non-Chinese Nationals Taking the ExaminationsTaking the Examinations
Qualifications for taking the
examinations
Sign up at the CICPA or Hong
Kong Society of Accountants
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Non-Chinese Nationals Taking Non-Chinese Nationals Taking the Examinations the Examinations
Exam subjects: accounting,
audit, financial cost
management, economic law
and tax law (continued)
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Non-Chinese Nationals Taking Non-Chinese Nationals Taking the Examinations the Examinations
Each subject is on a 100-point
scale, with 60 points as the
passing line.
Scores of individual subjects are
valid within 5 years.
(continued)
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Non-Chinese Nationals Taking Non-Chinese Nationals Taking the Examinationsthe Examinations
The examination is conducted in
Chinese. If passing all the
examinations, the applicants will be
qualified to apply for membership with
the CICPA.
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An Overseas Non-Practicing Member An Overseas Non-Practicing Member
Become A Practicing MemberBecome A Practicing Member
Preconditions are required
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China’s independent auditing China’s independent auditing standards systemstandards system
Introduction
Basic standards (continued)
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China’s independent auditing China’s independent auditing standards systemstandards system
27 specific standards
10 practice statements
(continued)
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China’s independent auditing China’s independent auditing standards systemstandards system
4 practicing guidelines
(continued)
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China’s independent auditing China’s independent auditing standards systemstandards system
The system of independent
auditing standards is consistent
with the international auditing
standards in all material respects.
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Roadmap of Chinese Independent Roadmap of Chinese Independent Auditing StandardsAuditing Standards
Formulate new standards and guidelines,
such as Instructions on the professional
Ethics for Chinese Certified Public
Accountants.
Supplement and revise the framework of the
independent auditing standards and improve
the standards.
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Further Opening the Accounting Further Opening the Accounting Services MarketServices Market
Market access:
foreign accounting firms will be allowed
to establish member firms in China
(continued)
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Further Opening the Further Opening the Accounting Services Market Accounting Services Market
National treatment:
granted in all aspects except
restrictions on the entry and
residence of individuals
®The Chinese accounting communityThe Chinese accounting community
is willing to is willing to join the professions join the professions
from other countries, to work towards a bright from other countries, to work towards a bright
future for our profession future for our profession
in the new centuryin the new century!!