There are still many differences in accounting treatments between the regulations of PRC GAAP and IFRS. From the annual report of CPCC, the first difference in accounting treatment is the depreciation method. Under PRC GAAP, oil and gas properties should be depreciated on the basis of straight-line while under IFRS, this depreciation method of oil and gas properties is unit of production (IFRS, 2012). Another obvious difference in accounting treatment is the disposal of oil and gas properties. According to PRC GAAP, gains or losses from disposal or retirement of oil and gas properties could be recognized as income or expenses in the income statement. However, it is not allowed on the basis of IFRS. IFRS regulates that the gains or losses from fixed assets disposal, with combination of the carrying value of these assets, should be treated as depreciation (IFRS, 2012). And accounting to the annual report of CPCC in 2003, it can be found that the loss of disposal of oil and gas properties in 2003 financial year was large. Thus, based on the regulation of PRC GAAP, it did result in reduction of net profit when the loss was recognized as expense. The third difference in accounting treatment under two types of standards is the reorganization of gain from insurance of shares by subsidiary. Under PRC GAAP, the gain from insurance of shares by subsidiary should be treated as capital reserve while based on IFRS it should be recognized as income (IFRS, 2012). Obviously, the regulation by PRC GAAP on this point would make the net profit lower than the treatment under IFRS. In addition, different treatments on gains from debt restructure under PRC GAAP and IFRS also effect on the income statement. According to PRC GAAP, gains from debt restructure should be recognized as capital reserve while IFRS regulates that it should be regarded as income (IFRS, 2012). Thus, according to the regulation of PRC GAAP, gains from debt restructure will not increase the net profit. The fifth difference in accounting treatment of two different accounting standards indicates that PRC GAAP requires land use right needs to be carried at the revalued accounting amount while IFRS regulates historical cost as the accounting amount. And according to PRC GAAP, when the second revaluation amount is much lower than the first revaluation amount, the revaluation reserve should be written off and the gap should be recognized as expense. Among all of these different accounting treatments, it is the difference of depreciation method which has the largest effect on the income statement of CPCC. In the basis of straight-line method, depreciation is same in every year. However, based on unit-of-production method, depreciation will vary to a larger extent, because production amount will be affected by many factors and be different in every year. Thus, because of different accounting treatment on depreciation of assets would have very different effect on the income statement.
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The differences in accounting treatments that have resulted in the net profit figure reported under IFRS being lower than the amount reported under U.S. GAAP.
The first one is treatment on foreign exchange gains and loss. Under IFRS, foreign exchange gains and loss on capitals borrowed for construction and other properties should be capitalized when they are ready to work. However, U.S. GAAP requires it regarded as current earnings (U.S. GAAP, 2009). Thus, based on the regulation of U.S. GAAP, foreign exchange gains and loss would increase the net profit of CPCC in 2003. The second different accounting treatment is disposal of equipment, plant and property. The gains and loss from disposal of these assets should be regarded as the equity under IFRS while based on U.S. GAAP it should be added to the net profit in the income statement (U.S. GAAP, 2009). Thus, this difference on accounting treatment will result in lower net profit under IFRS than under U.S. GAAP. In addition, about the depreciation of revalued assets, U.S. GAAP does not allow revaluation model to do accounting about plant, property and equipment (U.S. GAAP, 2009). Thus, there is no depreciation of revalued assets. The depreciation of revalued assets under IFRS should be reversed according to U.S. GAAP. This will increase the net profit of CPCC. It is the depreciation on revalued assets which have the largest effect on the income statement. Other transactions such as foreign exchange gains or loss, disposal of equipment, plant and property and so on are not the major business activities of CPCC. And it is revaluation method under IFRS which would have important effect on the book values of assets and their depreciation.
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From the adjustment and reconciliation work of CPCC in its annual report, it can be found that if users of this financial report know about the common knowledge of accounting standards, they would understand the information provided in the annual report. However, the assumption is that the readers should have known about the regulations of PRC GAAP, IFRS and U.S. GAAP. Totally speaking, because of the differences on accounting treatments under different accounting standards, it is hard and costs highly for the corporate to show clear financial information to international investors. Besides, for international users, it is also not easily to know well about the financial position and performance of investment objectives in other countries. Thus, convergence towards international accounting standards and international financial reporting standards is an inevitable trend in the future along with the development of globalization.