Accounting Standards in China and Australia

Until recently, China has used a set of accounting standards that were quite unique in their records.   These standards were the legacy of a socialist period in Chinese history and rather than keeping records of loss and profit for a corporation operating in China, they mainly concerned themselves with keeping track of all of the assets available to the corporation.By not keeping close tabs on the debts that a corporation owes, the accounting standards in China have long been considered lax by the outside world and have hindered international companies who wish to have headquarters in China.For instance, a corporation in China with holdings internationally, such as in the United States, must create end of the year accounting reports using the Chinese Accounting Standards, another set using the International Accounting Standards, and a third using the North American Generally Accepted Accounting Principles, creating an overload of work and an extreme cost to the corporation.Recently the Finance Department of Chinese Government has begun a process which will translate the current Chinese accounting methods from their archaic status to where they will more closely mirror the International Accounting Standards which incorporate the Generally Accepted Accounting Principles.Previous to this decision to reform the way that Chinese corporations report their accounts, the Chinese system involved simply classification of ownership, industry, and government, giving companies an extreme amount of leeway in the ways in which they conducted business.   Now the Chinese government has instituted that each corporation must keep track of all debits and credits, report manufacturing costs as well as capital maintenance, and provide yearly financial statements.The first true accounting standards in China were implemented in 1997 and changes continue to be made to bring the country’s financial practices up to date.   Currently this transformation is still in progress, so any foreign company with a subsidiary in China must still comply with not only their country’s accounting practices but also with the Chinese straight line accounting practices which allow for a much slower depreciation of capitalized assets.For those wishing to not use the straight line method, the only way to use an accelerated accounting method with regards to Chinese holdings is to receive explicit permission from the Ministry of Finance.   Another difference in Chinese accounting methods is the difference in tax deductibility.For instance, China charges significant tax charges on intercompany transactions and treats transfer pricing of the upmost importance in order to receive a large cut of international taxes.   Incorrect interpretation of Chinese tax laws can lead to severe fines for corporations.In Australia, the corporate accounting practices previously used have also come under fire in previous years for being widely different from internationally accepted a ccounting standards.   In response, Australia began to work the internationally accepted accounting principles into their current system, effective January 1, 2000, and have also developed the Financial Reporting Council which is responsible for overseeing the accounting practices of both   public and private corporations operating in Australia.The previously lax Australian reporting standards which did not require corporations to conform to one specific type of accounting practices nor give stringent guidelines in so far as what reports were required by the government are being phased out by the International accounting standards which allow Australia to develop along with the global economy.Australia has also instituted an Australian Accounting Standards Boards to periodically re-evaluate corporate accounting practices in Australia as well as enforce the new standards being phased in.   Australia is working to harmonize their standards with those of the International Account ing Standards Committee and is also a part of the G4+1 global group which monitors the setting of international accounting standards.Works CitedAustralian Government. (2009, May 5). Australian Accounting Standards Board. Retrieved May 5, 2009, from Australian Accounting Standards Board: http://www.aasb.com.au/Home.aspxChina Accounting Standards. (2007, February 15). Retrieved May 5, 2009, from China Orbit: http://www.chinaorbit.com/china-economy/chinese-accounting-standards.htmlLehman Brown. (2009, February 12). Chinese Accounting FAQ. Retrieved 5 May, 2009, from Lehman Brown: http://www.lehmanbrown.com/FAQ-Acc.htmQueensland University of Technology. (2008, June 15). Accounting Standards. Retrieved May 5, 2009, from Queensland University of Technology Library: http://www.library.qut.edu.au/learn/type/accountingstandards.jsp