China adopts international standards

Internal Auditor, April, 2006 by T. McCollum

REVISED CORPORATE AND public accounting standards issued recently by China's Ministry of Finance move that country closer to rules established by the International Accounting Standards Board (IASB), beginning in January 2007. The standards, which include 39 corporate accounting rules and 48 rules for external auditors, are expected to improve investor confidence in Chinese markets, says Finance Minister Jin Renqing.

"The newly-issued standards are aimed at improving the quality of financial information," Jin said at a ceremony announcing the standards in Beijing. "More strict and scientific regulations are applied to the format and announcement of financial information."

IASB Chairman Sir David Tweedie told ceremony attendees that bringing China's accounting standards in line with principles accepted by investors worldwide could spur additional investment in the Chinese market. "For Chinese companies that are increasingly playing a global role," Sir David said, "the acceptance of the new standards should also reduce the cost of complying with the accounting regimes of the different jurisdictions in which they operate."

Lou Jiwei, chairman of the China Accounting Standards Committee, said the revised standards for business enterprises are intended to provide "decision-useful" accounting information to investors and the general public. The rules place a greater emphasis on a company's current operating business, rather than unusual gains or losses. The standards are expected to make financial reporting information filed by Chinese-listed companies more objective, according to officials of the China Securities Regulatory Commission. Under the old rules, Chinese companies had more opportunities to manipulate profits.

The revised standards for registered accountants are expected to improve the transparency and reliability of financial reporting and audits. Moreover, moving those standards closer to IASB standards is intended to boost the proficiency of accountants and auditors working in China and make Chinese accounting firms more competitive internationally, Jin said.

Internal auditors in China must take an active approach to adapting their practices to international standards, says Zhang Yu, vice secretary general of IIA-China. "Chinese internal auditors should understand the key points and changes to the accounting standards and their influence on the role and functions of internal auditing," Zhang says.

IIA-China recently established a guidance program that addresses differences between China's Internal Auditing Standards and The IIA's International Standards for the Professional Practice of Internal Auditing.

Future plans call for Chinese regulators to inspect how listed companies and accounting firms are implementing the standards.