International Accounting Standards

The IAS has been chosen as the basis for comparison in this chapter because of its international acceptance and the similarities of its fundamental accounting concepts and principles with accounting standards published by other professional bodies.

The International Accounting Standards Board (IASB) (formerly known as the International Accounting Standards Committee (IASC)), the issuing body of the IAS, was founded on 29 June 1973 and as set out in its constitution its objectives are:

• to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world's capital markets and other users make economic decisions;

• to promote the use and rigorous application of those standards; and

• to bring about convergence of national accounting standards and International Accounting Standards to high quality solutions.

The opening-up of China has attracted an influx of foreign investment. Foreign investors, before committing to an investment project, would like to know how the financial statements of the target enterprise would look if the statements were prepared under accounting standards used in their own countries . Prior to the issuance of the ASBE in 2001 and their mandatory adoption by FIEs in 2002, in the absence of a set of well- accepted accounting standards or practice in China, the IAS played an important role in assisting foreign investors in making their investment decisions.

It appears that there is now a set of more uniform accounting regulations governing the preparation of financial statements by PRC enterprises and that these accounting regulations are significantly closer to IAS compared to fund accounting which was used in the past. There are still a number of important areas in the PRC regulations, however, that are not in line with the IAS. A summary of the major differences between the PRC accounting standards and the IAS is provided in Appendix V at the end of this book, using the latest information available at the time of writing. Where necessary, the US GAAP requirements have also been included. While the table serves as an easy reference, a few major differences for discussion are described below:

• Fair value is generally not recognized under PRC regulations due to the lack of open markets and the unavailability of fair values. In addition financial assets and liabilities that are realizable beyond one year are not discounted. Furthermore, the accounting for derivative instruments is not addressed.

• The accounting for special purpose entities is not addressed.

• The PRC regulations provide for the use of deferred taxation . In practice the use of deferred tax is not common due to the complexity of implementation.

• Expenses incurred during the pre-operational period are capitalized onto the balance sheet until such time that the company enters commercial operation. The expenses capitalized so far are expensed in the first month of commercial operation.

• Employer's accounting for post-retirement benefits, other than defined contribution plans, are not addressed.