Environmental factors that influence the Accounting Standards in China

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

“Environment Factors Influences to Development of Accounting Standards in China

21st January 2015


In the wake of the rise of the Chinese economic and the development of Economic Globalization and integration, the International Accounting Standards (IAS) will become increasingly important for China. The essay will introduce the history of IAS and the development of IAS in the China. The development of IAS is not smooth in China. The essay will discuss and analyse about the factors such as institutional, culture or others which are likely to lead to, or have led to this problem. And then the essay will make some probably predictions for the further development changes of IAS in china and what is likely to influence these changes. Finally, the essay will give the evaluation summary for the factors of IAS’s development in China.

International Accounting Standards (IAS) are International Financial Reporting Standards that were created by the predecessor body of the International Accounting Standards Committee (IFRS 2015) which established by 16 professional accounting organizations in 9 countries in June 1973.

China’s accounting standards established in 1949 when the founding of China. This standards were imitated by accounting system of the Soviet Union. Since the 1980s, with the development of China’s ReformandOpening and disintegration of the Soviet Union, China’s accounting system had further development and improvement (Sun 2012). At the moment, the implementation of IAS in China was not smooth and had a lot of difficulties. There are some probably factors which have led to, or are likely to lead to this problem.


Individualism versus collectivism. Collectivism means individuals belonging to the community, which represents the personal interests should be subject to collective interests (Hofstede 1987). In China, culture believe in collectivism and it will be the collective interests first. However, in some countries such as United Kingdom, the United States and Australia which established IAS, their culture believe individual interests and the pursuit of individual freedom (Guo 2009). The accounting system in the countries which implement IAS, the accounting information mainly to provide to individual users. However, the accounting information first to meet the needs of institution such government. Therefore, the IAS is not suitable for China’s accounting system.

Large versus small power distance. Power distance means centralization of the ruling class, this dimension expresses the degree to which the less powerful members of a society accept and expect that power is distributed unequally (Hofstede 1987). In small power distance such as countries which established IAS, there is a low degree of centralization and the core of management theory is employees. China is a highly centralized country that the accounting information in order to meet power holder’s needs. For example, the China’s accounting standard always formulated by government such as The Ministry of finance and accounting department (Guo 2009). Therefore, the accounting practitioners and academia have a small effect on formulating standard. In the United States, which is one of countries established IAS, the accounting standard formulated by Financial Accounting Standards Board (FASB) which was composed of accounting profession, business circles, accounting academia and government department is a position of authority in accounting profession.

Strong versus weak uncertainty avoidance. The uncertainty avoidance dimension expresses the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity (Hofstede 1987). For accounting standards, the strong uncertainty avoidance of social has more detailed standards than weak uncertainty avoidance. The China’s social has strong uncertainty avoidance, all walks of life have a special own accounting standards. However, in most of countries which established IAS, the social probably has weak uncertainty.

Masculinity versus Femininity. The masculinity side of this dimension represents a preference in society for achievement, heroism, assertiveness and material rewards for success. Society at large is more competitive (Hofstede 1987). In China, the social culture more like Moderation, the companies need provide assorted welfare to employees. Therefore, the China’s companies need more types of accounting standards.

Professional v Statutory Control. The professional degree level have a significant impact on the accounting standard. For example, the United States started established accounting professional organization in late of 19th and early 20 century, it laid the foundation for high professional level and perfect accounting standards. However, the China’s accounting standards established in 1949 by the government. Compare with the countries which established IAS such as the United States, China’s accounting standards’ making organization has significant lower professional level.

Uniformity v Flexibility. The social of China advocating collectivism and the culture believe unity of the whole. For accounting system, the accounting standards require companies to harmonize the different types accounting practices and to be consistent with accounting methods in different period (Guo 2009). In addition, the China’s accounting system leave less space for companies dealing with practices of accounting on a case-by-case basis. However, the countries which use IAS like the United States, the accounting standards apply to only stock company and it is not mandatory for the other types of company. Therefore, the countries of using IAS have more flexible accounting system than China.

Conservatism v Optimism. In accounting system, the accounting practitioners prefer conservatism or optimism will affect the accounting standards. However, in overall of China’s accounting standards, there is not enshrines the principle of conservatism. Therefore, it is unlikely to affect accounting standards because of the principle of conservatism.

Secrecy v Transparency. The culture of China always be understood like secret and mysterious symbol. But the countries which established IAS such as the United States is known as a model of transparent and open (Guo 2009). Therefore, the China‘s accounting standards require less disclosure matters than the countries which using IAS. For example, the United States accounting requirements include the impact of stopping the operation and changing in accounting policy and other projects, the China’s accounting income statement do not have these items.


Legal system is one important factor of institutional for accounting standard. Different legal systems in different countries has direct impact on the accounting system established of a country. In addition, this impact directly determine a country’s accounting system established by government or non-governmental organisation such as FASB in the United States. At the same time, it also influence the rules of accounting system controlled by company low (Gray&Black 2006). However, in China, the regulation accounting law provide that the accounting standard established by government which has big differences with IAS used countries.

The capital market is also key factor for accounting standard. The reason of the International Accounting Standards (IAS) performed well in established countries probably is that agreed by different institution of regulating finance and setting standards in the most countries (Sawani 2009). For example, “all securities regulators should work together diligently to create sound international regulatory frameworks that will enhance the vitality of capital markets” the source a policy by the SEC (the U.S. Securities and Exchange Commission) in 1998. In addition, capital market can get greater benefits from uniform accounting standards (Sawani 2009). However, because of the different political system and social nature, the capital market in China is fundamentally different than the countries which established IAS. Therefore, the IAS performed difficult in China.

The quality of education is a pivotal factor of development and performed of accounting standards. If lacking education of the accounting, it will hinder the development of the accounting standards (ÄŒerne 2009). The level of accounting’s education also most influenced by factor that the general level of knowledge of a society. In addition, it also influenced by other factors such as the status of accounting professional in a national educational system and the level of economic development (ÄŒerne 2009). In China, the accounting education has been very common. However, there is uneven level of accounting education in the different region of China. In addition, compared with developed country, China as developing country has more backward accounting education. Therefore, it is difficult to performed uniform and advanced accounting standard such as IAS in all regions of China.

For accounting standards, religion is an important cultural variable. For example, according Hoarau said in (1995) “predominantly harmonization with the Anglo-Saxon accounting model; it thus conflicts with the economic, social and cultural environment of other accounting systems” (Hoarau 1995), which viewed IAS’s increasing impact. In China, the ruling class advocate atheism, it has essential difference with western country. Because of the different of the religion, the main accounting standards IAS in western country is not perfect for China.

In the future, the change of the accounting standards is probably that IAS will develop rapidly and become main accounting standard in China. In addition, the accounting standards have to quicken the pace of acting closer to international convention. In recent years, International Accounting Standards Board expressed support for Reform of China's accounting system. “China's construction and convergence of accounting standards has made remarkable achievements” said by International Accounting Standards Board chairman David Teddy (Chinanews 2010). In April 2010, Chinese Ministry of Finance published "China Accounting Standards and International Financial Reporting Standards continued convergence road map" (Chinanews 2010) which means China’s accounting standard sustained convergencewith IAS.

The biggest factor for this change probably is the rapid development of economic globalization and integration of world’s economy the uniform accounting standards such as International Accounting Standards (IAS) will become main trend of the world and accepted by more countries. The unified accounting standard bring more convenience and benefits for China’s international trade and investment with other countries. The other factors for this change such as IAS is more advanced than China’s accounting standards and official recognition of China for IAS. Although the inevitable change of IAS will become the main standards in China, it will be a difficult process. There are some immutable factors such as different political systems, different social and culture and different level of economic development attitudes between China and western countries.


The essay first have introduce the basic of the International Accounting Standard (IAS) and development of IAS in China. Then the essay viewed that the probably factors influence the IAS’s development in China. The factors analysed include eight points of culture and four points of Institutional such as legal system, capital market, education and religion. List the differences of these factors between China and countries which established the IAS and it influenced the development of IAS in China. Finally, the essay predict that the change of IAS in China probably will develop rapidly and become the main accounting standards in the future. The prediction is based on the rapid development of economic globalization and integration, IAS can bring more convenience and benefits, IAS is more advanced and official recognition of China for IAS. However, different political systems, different social and culture and different level of economic development attitudes between China and western countries, these factors maybe make difficulty for development of IAS in China.


Radebaugh, L.H., Gray, S.J., Black, E.L., (2006), International Accounting and

Multinational Enterprises, (Hoboken: John Wiley & Sons, Inc).

White, L.S. (2010). “The Influence of Religion on the Globalization of Accounting Standards” [Online] Available: http://ww.cbfa.org/White.pdf [Accessed 20/01/15]

Sawani, A. (2009). “The Changing Accounting Environment: International Accounting Standards and US implementation” [Online] Journal of Finance and Accountancy Available: http://www.aabri.com/manuscripts/09206.pdf [Accessed 20/01/15]

Dollo, A.L. (2014). Factors Influencing the Difference in Accounting System [Online] Available: http://www.academia.edu/8514735/factors_influencing_the_difference_in_accounting_system [Accessed 20/01/15]

Hofstede, G. (1980). Culture's Consequences [Online] Available: http://geerthofstede.nl/dimensions-of-national-cultures [Accessed 19/01/15]

The Hofstede Centre (2015). “National Culture Dimensions” [Online] Available: http://geert-hofstede.com/dimensions.html [Accessed 19/01/15]

Shirley. (2012). “Individualism and collectivism” [Online] Available: http://wenku.baidu.com/link?url=6Fcnb62nx5XGveIncNoDt0HWXUynre0Gc35TtyOVlwYi5K45O9Rwswj2gLpWo0VS7RUrWnnCBVxjW5QkOnEKVAI8M8E36_PoMscLC-Zqcri [Accessed 20/01/15]

Docin. (2011). “Accounting cultural differences and their impact on the construction of the accounting system” [Online] Available: http://ww.cbfa.org/White.pdf [Accessed 20/01/15]

IFRS (2014). “International Financial Reporting Standards” [Online] Available: http://www.ifrs.org/IFRSs/Pages/IFRS.aspx [Accessed 20/01/15]