China Accounting

The Rise of Accounting

In China

Prepared By:

Serena Coleman

serenawis@gmail.com

414-870-1365

Table of Contents

Introduction 3

Significance of China in the Global Market 4

History of Accounting in China 6

Establishment of Accounting Standards 9

Financial Reporting and Auditing Requirements 11

Recent Developments and Impending Accounting Issues

Works Cited

Introduction

China has a population of 1.3 billion whose per capita income has grown tenfold since 1990. An annual growth rate averaging more than nine percent over more than two decades has driven China to fourth place in the world economic league table. Many investors and potential businesses see China as an emerging market and potential location for foreign subsidiaries. China is characterized by intense competition and entrepreneurial activity in almost every field (Read and Partridge, 2006).

Some major advantages and also major concerns exist in multinational enterprises due to China's accounting system. As China is one of the oldest civilizations in the world, their accounting system lacked structure. China went from a double-entry accounting system, to a debit-credit accounting system following Western Civilization, to other individual systems that certain leaders felt would be more specific to China.

To remain competitive with other foreign accounting industries, China developed groups of accounting professionals to research and develop accounting standards. The Chinese Ministry of Finance was developed to establish regulations and standards for their current accounting system. Under the Ministry of Finance, the Administration of Accounting Affairs was implemented to assist China in conforming to a uniform accounting system. Along with these two standard setting bodies, China also followed the United States in developing the Chinese Institute of Certified Public Accountants. Compared with the United States, China has gone through many previous and recent changes in their accounting and auditing standards and is slowly moving towards more internationalized accounting methods.

Significance of China in the Global Market

China is currently one of the fastest growing economies in the world. Many people find it hard to believe that an isolated, communist country could turn into one of the world's leading manufacturers within two decades, but it happened. China's overall success came through a slow process of global integration and decades of economic self-sufficiency. In 1978, China was a highly regulated and isolated country under control by The Communist Party. Post 1978, China went through a transitional stage where intercontinental transactions increased drastically to a point where all countries are currently affected by their industry (Zweig, 2003).

China's affect on the global economy is due to its innovation and retention of manufacturing and technological industries. The labor intensive factories of China produce 70% of the world's toys, 60% of the world's bicycles, and 50% of the world's shoes. Many corporations have moved production centers into China due to the effective and efficient labor terms. The transfer of worldwide large-scale industrial segments to locations where the cost of production is low has had a very positive impact on China. Every added manufacturing plant increases the amount of materials that need to be imported from neighboring countries, which in turn increases China's amount of purchasing power. China's manufacturing segment continues to increase as other countries rely on Chinese components or subassemblies to remain competitive (Shenkar, 2005).

Still remaining a low-tech, labor intensive manufacturer, China has continued to be one of the Worlds most advanced technological developers. Dating back to the Imperial Period, China was known for the development of some impressive and widely used inventions today; paper, gunpowder, compass, fireworks, and the abacus. Although China developed some impressive things during Imperial China, it failed to develop formal science. With falling behind the competition of other countries in the West, China continued as a country with no principles or economic infrastructure in technology advances.

Falling behind in technology only represented the future outcome of China. Military defeats displayed their technological weaknesses to the World. China revealed the enormous impact of declining technology on any competing country. When communism took over, China only fell further behind. Eventually, in the past two decades, China began the restructuring of their inventions. They finally determined ways to continue developing products, but also concentrated on characterizing them to their own country and closing the gap between them and the developed world (Shenkar, 2005).

Presently, China plays a large role in globalization. The large country is engaged in global commerce and active in transnational exchanges of all sorts. New linkages in the global economy include joint ventures, foreign affair offices, and many export processing zones. Total foreign trade rose from 20.6 billion in 1978 to 475 billion recorded in 2000. China continues to play a large role in production and exportation of products worldwide. According to Goldman Sachs research of previous growth levels, China will continue to develop and become the largest economy, along with the U.S. by 2050 (Read & Partridge, 2006).

Analysts believe that China will continue to increase in their dominance of global manufacturing and remain as one of the leading countries in many industries (Zweig, 2002).

History of Accounting in China

The history of accounting demonstrates

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