Adaptability to fair value accounting in an emerging economy

Songlan Peng · Kathryn Bewley

111 citations0/0 files storedAccounting Auditing & Accountability Journal

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Accounting Theory and Financial Reporting Auditing, Earnings Management, Governance Accounting and Financial Management

Abstract

Purpose This paper seeks to assess the feasibility and desirability of a major emerging economy adopting and implementing fair value accounting (FVA), as codified in the International Financial Reporting Standards (IFRS), by studying China's recent experience. Design/methodology/approach The paper examines the extent of FVA adoption in China's new accounting standards (“2007GAAP”), reasons for differences from the International Accounting Standard Board's IFRS, and how 2007GAAP has been implemented in practice. Data are obtained from content analyses of IFRS and 2007GAAP FVA requirements, critical assessments of standard setters' official statements, and analyses of empirical evidence from official reports, media, and academic research. Findings The authors find a high degree of adoption of IFRS FVA standards in China's 2007GAAP for financial instruments, but many differences for non‐financial long‐term asset investments. Standard setters justify this divergence by fundamental characteristics of the Chinese environment. The resulting differences from IFRS in the 2007GAAP FVA standards, and in their implementation, challenge official claims of “substantial convergence” between 2007GAAP and IFRS. Hence, the benefits desired by Chinese regulators from adopting FVA and international accounting convergence to IFRS may not be realized. Research limitations/implications The findings are derived from aggregated data in government reports. These findings can be extended in future research by examining specific implementation outcomes in company financial statements. Originality/value The paper contributes a timely critical examination of a major emerging economy's convergence with the controversial FVA requirements, which supports the IFRS's standing as a high quality set of accounting standards. The findings provide new insights into factors that can impede international accounting convergence in emerging economies.

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References

2008International Accounting Standards and Accounting Quality 2006International Financial Reporting Standards (IFRS): pros and cons for investors 1994Fair Value Accounting: Evidence from Investment Securities and the Market Valuation of Banks.1996Value-Relevance of Banks' Fair Value Disclosures under SFAS No. 107.1999Revaluations of fixed assets and future firm performance: Evidence from the UK 2007Financial reporting quality: is fair value a plus or a minus?1995Fair value accounting: Effects on banks' earnings volatility, regulatory capital, and value of contractual cash flows 2009Accounting Standards, Financial Reporting Outcomes, and Enforcement

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