The IASB and its predecessor organization have as a stated objective to narrow worldwide differences in accounting practices and the presentation of financial information. In February 2006 at a ceremony in Beijing, People’s Republic of China, the Chinese Ministry of Finance announced the adoption of new Chinese accounting standards that bring about substantial convergence between them and the IASB’s IFRS. These are excerpts from a statement made during the ceremony by Sir David Tweedie, chairman of the IASB: I am honoured to be here today to mark what I believe is an important step for the development of the Chinese economy and its place in the world’s increasingly integrated capital markets. The adoption of the new Chinese accounting standards system brings about substantial convergence between Chinese standards and International Financial Reporting Standards (IFRSs), as set by the International Accounting Standards Board (IASB). Like the United States and Japan, China is committed to convergence with IFRS. . . .The benefits of these accounting reforms for China are clear. The new Chinese standards that incorporate accounting principles familiar to investors worldwide will encourage investor confidence in China’s capital markets and financial reporting and will be an additional spur for investment from both domestic and foreign sources of capital. For Chinese companies that are increasingly playing a global role, 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. . . .

1. Why might it be beneficial to narrow worldwide differences in accounting practices? Are there any disadvantages associated with convergence?
2. Explain how the convergence of Chinese accounting standards and IFRS can benefit the Chinese investor who invests only in Chinese companies.
3. Explain how the convergence of Chinese accounting standards and IFRS can benefit the U.S. investor who sometimes invests in Chinese companies.

  • CreatedSeptember 10, 2014
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