The conceptual framework

In Western countries , although amendments and revisions to accounting practices or standards do not have legal binding power, they are formulated according to an existing national legal framework which is provided in most cases by Companies Ordinance or Acts . Companies Ordinance or Acts together with other regulations applicable to individual industries, such as the Banking Ordinance for financial institutions and Listing Rules or Securities Acts for listed or public companies, provide a framework upon which accounting professional bodies formulate accounting and auditing standards. These standards form the basis for establishing accounting principles, and perhaps conventions, that allow enterprises flexibility in formulating their own accounting policies best suited to their individual circumstances. The ultimate objective, in a nutshell , is to produce a set of financial statements that are 'true and fair'.

Until 1994 China lacked a regulatory framework on which accounting and auditing standards could be set since the country's first national Companies Laws were not effective until 1 July 1994. The lack of such a framework also rendered the formulation of other regulations, such as the national Securities Laws and Listing Regulations , more difficult and time consuming.

Nevertheless, having realized the need for establishing acceptable accounting principles to enable PRC enterprises to attract foreign investment or have their stocks listed on overseas markets, the MOF promulgated a separate set of accounting regulations for selected joint stock companies in January 1992.

In addition, MOF made effective on 1 July 1993 the first set of accounting standards “ Accounting Standards for Enterprises “ applicable to all PRC enterprises. Although it might be confusing at times which accounting regulations or standards would apply, together with the then Accounting Regulations for Foreign Investment Enterprises of the PRC, they have provided relatively uniform accounting practices for enterprises to follow in preparing their financial statements. More importantly because of the lack of a complete regulatory and conceptual framework, these accounting rules or regulations are so comprehensive that they encompass accounting concepts, disclosure requirements, accounting entries, control procedures, record keeping and some aspects of auditing requirements and liquidation.

With the introduction of the Accounting Law in 1999, the Regulations on Financial Reporting of Enterprises in 2000 and the Accounting Systems for Business Enterprises in early 2001, which harmonizes the different accounting standards and regulations applicable to different enterprises, the framework of modern Chinese accounting has finally become clear.