Content area
Full text
We evaluate the level of convergence of Chinese accounting standards (PRC GAAP) with International Financial Reporting Standards (IFRS) since the establishment of the "new PRC GAAP" in 2007. Further, wet examine the value relevance of accounting measures under PRC GAAP as compared with IFRS. The tests use data from dual-listed companies on both mainland China's A-share exchange (using PRC GAAP) and Hong Kong's H-share exchange using IFRS. The results indicate that adoption of the new PRC GAAP eliminated significant differences between the two accounting standards. Further, the value relevance of accounting information under PRC GAAP increases through the sample years. The value relevance of PRC GAAP became higher than IFRS for the last two years, implying that current PRC GAAP incorporates the traits of IFRS and Chinese accounting practices that are most useful in Chinese stock markets.
(ProQuest: ... denotes formulae omitted.)
INTRODUCTION
The Chinese Ministry of Finance (MOF) released a set of thirty-eight new Accounting Standards for Business Enterprises (ASBE) in February 2006, which are considered as the "new PRC GAAP." This issuance of new PRC GAAP represents a milestone for Chinese domestic economic development (KPMG 2011). The new standards are mandatory for all Chinese listed companies beginning January 1, 2007. This accounting reform significantly changed the "old PRC GAAP" and covers nearly all topics under IFRS issued by the International Accounting Standards Board (IASB). It is intended to bring about substantial convergence between Chinese accounting standards and International Financial Reporting Standards (IFRS). The issuance of the new PRC GAAP appears to be a significant step for the economic development in China, and enhance its place in the world's increasingly integrated capital markets.
Several significant benefits should accrue to China related to the development of new standards that have greater convergence with IFRS. The new standards will be more familiar to worldwide investors, and bring about greater investor confidence in China's capital markets and financial reporting. This should increase capital investments in China from both domestic and foreign sources. Global Chinese companies should also see a reduction in compliance costs under accounting regimes of the different jurisdictions in which they operate (Deloitte Touche Tohmatsu 2006).
IFRS are developed by the IASB, primarily based on input influenced by countries with highly developed capital...