Equity Market and Accounting System in China

Huang, Dai (2009). Equity Market and Accounting System in China. MRes thesis The Open University.

DOI: https://doi.org/10.21954/ou.ro.0000f24e

Abstract

Financial reporting practices have developed rapidly since the establishment of China’s equity market in 1990. More decision-useful accounting information is required by the investors. An understanding and insight of how the development of equity market has influenced the accounting reform is important in facilitating international convergence of accounting standards and practices. This study investigates the influence of the equity market on accounting reform in China. In this study, I hypothesize that the requirement for the decision-usefulness of accounting information disclosure is the main motivation for the development of the CAS. I analyze the problems of accounting information derived from the immature equity market by identifying the three issues: (1) special ownership structures, (2) weak corporate governance mechanism of the listed companies, and (3) the segmentation of the equity market. Examples are given to present the unreliability of accounting information through accounting manipulation and even financial frauds, and the lack of understandability and comparability of accounting information across countries. Finally, I discuss the responses of accounting reform to the requirement for accounting information derived from equity market from two aspects: (1) narrowing the gaps of accounting practices between the CAS and the IAS and (2) regulations of and requirements for information disclosure.

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