The Current Status of the Chinese Firms - Research Proposal Example

page: whether china’s financial accounting standards should integration with the world Introduction The International Accounting Standards Board (IASB) develops the objective of the International Financial Reporting Standards (IFRS) (International Accounting Standards Plus, 2014). And the IASB has further elucidated the IFRS objectives: developing a single collection f understandable, high quality, enforceable and globally recognised financial reporting standards; and these standards necessitate high quality, comparable and transparent financial information in the financial statements and in other reporting instruments which enable the different users of information, including shareholders, ordinary and institutional investors, creditors, financial institutions and others for making well-information economic decisions; promoting active use and application of the IFRS; satisfying the above objectives will require for considering the other aspects, such as type of entities, range of sizes in diverse economic environments; promoting and facilitating adopting to IFRS through convergence with the national accounting standards (International Accounting Standards Plus, 2014). Thanks to the globalisation, the world has become a small village in which interaction and communication has become faster, convenient and easy as well. And in the this globalisation, the main role is being played by the Internet as it is main engine that drives the process of globalisation in which firms no more rely on the use of traditional paper-based exchange of information and communication instead paper-less transactions are becoming more common. In this regard, it is important to mention that the process of integration, which is the important part in this proposal, largely depends on the use of those methods and systems that facilitate integration and enable firms to become active members in this city with globalized access to the world. All developing and developed countries are benefiting from the pace of globalisation by integrating with the global economy. And this integration is important for the firms as this will enable them to faster transaction, make and receive orders, send and receive product cost and product information. As a result, to become integrated with the world, it is highly essential that China and the Chinese firms should comply with the IFRS through taking all those measures that facilitate the pace of integration and adoption as well. Research Objectives Understanding the current status of the Chinese firms compliance with the international financial accounting standards Overhauling the objectives of the international financial accounting standards Examining the current financial and economic challenges hampering the Chinese firms to integrate with the international financial accounting standards Recommending methods to overcome these financial and economic challenges for faster compliance with the international financial accounting standards Research Questions What are the purposes of the international financial accounting standards? What is the current status of Chinese financial accounting standards? How China should integrate its financial accounting standards with the international accounting standards? What are the financial and economic challenges for integrating with the international financial accounting standards? How China can overcome the financial and economic challenges so as to comply with the international financial accounting standards? Overview of China China adopted the IFRS by the end of 2007 (Gillis, 2014). Before complying with the financial accounting standards set by the IASB, the Chinese firms were required to comply with the financial accounting standards developed and provided by Chinese Accounting Standards (CAS). Under this accounting framework, the firms were required to use all accounting standards that are provided by the CAS for presenting and making the financial statements. This transformation is mainly contributed by the fact that the Chinese economy has undergone a drastic change and development process as well in which the economy has shifted from the planned economy to the market economy (Grand, 2011). More specifically, on 15 February 2006, the Chinese Finance Ministry published a newly complied set of Accounting Standards for Business Enterprises (ASBEs); these new accounting standards are prepared by keeping in view the IFRS (International Accounting Standards Plus, 2014a; United Nations, 2006). And at the same time, publication of this information also highlights that the process of compliance is continuous as all accounting standards are going to be merged or converged with the IFRS (International Accounting Standards Plus, 2014a). In other words, China has adopted to the international financial accounting standards yet the full compliance or convergence is yet to be materialised. Literature Review Government Control remains the main challenge for ensuring effective compliance with the IFRS framework in China; the Ministry of Finance determines and controls the accounting regulation mechanism in China as it is the sole entity that has been empowered to determine and regulate accounting compliance and setting accounting standards (Chen et al., 2006). In this regard, it is important to mention that this type of accounting regulation is completely opposite to one that is applicable in other countries, such as the United Kingdom, the United States and others whereas the independent regulatory bodies complying with the IASB and its IFRS, are mainly authorised to work with the firms for complying with the accounting standards. On the other hand, Griff (2014) contends that the Chinese Institute of Certified Public Accountants (CICPA) is authorised to monitor accounting practitioners and this mandate is particularly provided to ensure attainment of socio-economic objectives of the Chinese accounting system. In other words, it can be deduced that the accountants are required to work by keeping in view the requirements of socio-economic objectives of its economic and accounting systems. In this regard, it is vital to mention that this type of policy thinking is mainly caused by the fact that China had been part of the Soviet Union in which socio-economic policy and welfare of society were the main policy objectives. Still, many firms are owned by the Chinese government (Lee et al., 2013). National and international accounting regulations do not have similar treatment of certain accounting policies. In the mainland China, both national accounting standards in the shape of the Chinese Accounting Standards (CAS) and IFRS are currently implemented by the Chinese firms. In this regard, Hussey and Ong (2005) contend that currently the Chinese firms are forced to simultaneously comply with the CAS and IFRS as well; and in order to substantiate this point of view, they contend that state owned enterprises are still outnumber the operational private firms; and consequently still political involvement is still wide spread despite the fact the firms have transferred into joint stock enterprises. Based on this reality, it can be deduced that the current Chinese political system, which operates and controls the whims of the economic and accounting systems, are still under the sway of those political parties which are still reluctant to fully comply with the IFRS instead they still insist that the CAS should be preferred to the IFRS. China is accelerating the convergence with the IFRS (Godfrey and Chalmers, 2007). However, the level of resistance against IFRS adoption can be gauged by the fact that still China’s Accounting Law does not make any reference to IFRS (Kroeker, 2010). The use of IFRS is disallowed to domestic Chinese firms (IFRS, 2014). And additionally, in a bid to join the World Trade Organisation (WTO), China was forced to comply with the IFRS (Yang and Kuhn, 2007) and most large firms are still audited by the local audit firms (Avery et al., 2009). However, still All Chinese firms whose securities are registered and traded in a public market are not allowed to use or comply with the requirements of IFRS instead they are required to use accounting standards mentioned in the Chinese Accounting Standards for Business Enterprises (ASBEs) especially for reporting the financial information within the geographical boundary of China (IFRS, 2014). This clearly indicates the level of challenges and resistance toward the adoption to the IFRS as the distinction between the national and international firms have been clearly marked by this accounting policy. However, this becomes a challenging situation when a Chinese firm operating internationally requires using the IFRS for reporting the financial information. And this becomes more difficult for such companies when there is no additional information or policy guideline available for enabling such companies for making their annual accounts. More importantly, Chinese foreign institutional investment has not increased even after adoption to IFRS instead this type of investment has declined (DeFond et al., 2014). Methodology Interpretivism promotes qualitative research method which is based on subjectivity. In this type of research activity, a researcher is required to comply with the standards of qualitative research method in which the researcher is empowered to use one’s own subjective understanding for carrying the process of research. While carrying out the research, the researcher needs to use his own ideas, own knowledge, experience and understanding for evaluating available data. And the most aspect is the subjectivity of the researcher which is central to the methodology of interpretivism. The subjectivity enables the researcher does not rely on other external sources in the form of natural laws governing the methodology of positivism instead it enables the researcher to apply one’s own judgement for assessing any piece of information. Positivism Positivism is based quantitative approach in which central importance is given to the perspective of objectivity. In positivism, a researcher is encouraged to use external knowledge and information for carrying out the process of research in which prime importance is given to the quantitative data which determines and highlights particular trends in a set of collected information. More importantly, natural laws, quantitative information and objectivity are applied for attaining the research objectives. In this regard, it is important to highlight that the researcher is not allowed to use one’s own understanding instead the application and trend reflected by the quantitative data are deduced and they highlight specific outcomes. In other words, the researcher is forced to use and apply the objectivity and is compelled to accept the outcomes provided by the objectivity and the quantitative data as well. Mixed Methodology This approach highlights the combination of both approaches in which neither dominates the outcomes but collectively both reflect an overall outcome of research. Since this approach uses both (Interpretivism and Positivism), it looks reasonable to apply this approach to satisfy the objectives of this research. The research questions and research objectives cannot be satisfied by applying any single research methodology approach as the type of data required can only be obtained through using the combination of both approaches. For example, it may not be difficult to obtain data highlighting those Chinese firms which have understood the IFRS and have complied and adopted to the IFRS. However, it would be challenging to comprehend the level and type of real world problems they face while complying with the IFRS and the CAS as well simultaneously. It is an understandable that for many national and international firms, complying with the requirements of IFRS along with the CAS especially under the government-controlled regulatory mechanism would be considerably challenging and difficult as well. For this purpose, it will be highly essential that to record the practical data and information from the companies operating in China and apply the theory of interpretivism for satisfying the research objectives. Data Collection Methods Both primary and secondary research methods are employed for carrying out a research activity. The primary research reflects access to first hand information which is directly obtained from a source. This type of research is considered to be more reliable, authentic and effective as well because it gives an opportunity to evaluate accounting policies and standards and their effects on the overall process of compliance. For satisfying the research objectives, the researcher will carry out the process of research in which data will be collected from 50 participants from 10 firms complying with the IFRS framework in the mainland China. For this objective, the researcher will determine and select those Chinese firms which are currently complying with the IFRS and the CAS as well. This prior determination and selection of firms will enable the researcher to select only those firms which are capable enough to provide authentic and real accounting compliance issues that they face routinely. Secondary research is carried out by collecting information or data from books, journals, articles and websites. This type of research does not allow researcher to collect data in its pure shape instead more reliance is placed on the source which provides authenticity and reliability to a piece of information. In this regard, it is important to mention that the secondary research will be carried out for satisfying the research objectives in which the main part (literature review) will be mostly reflecting information and data from the secondary research. This is important as it enables the researcher to understand the level of previous research on the topic and highlight its strengths and shortcomings. More importantly, this part provides a basic structure in which all those missing parts and loopholes that previous research has missed will be taken into account in the discussion and analysis part of this paper. The researcher attempts to use the subsequent sections for including the researched data and information collected through the primary source. Research Instrument Research Questionnaire with close ended questions will be distributed among the selected participants. In the research questionnaire, the respondents will be given choice to select the best option that they consider relevant to answer the question. In this regard, it is essential to highlight that the questionnaire will be composed of two questions elaborating all those issues that are directly related to satisfy the research objectives of this paper. More importantly, the questionnaire will not provide detailed questions, such as open-ended, instead the focus will highlight the close-ended questions in which certain clear and understandable answer options will be given below the questions and the respondents will only be required to tick the most relevant answer. Research Limitations China’s business environment is substantially larger and thousands of local and international firms carry out their business transactions. In China, all types of firms exist including small, medium-sized and large work. Thereby, it would be very challenging to cover and represent the financial accounting standards compliance issues which are being faced by the Chinese firms. In this regard, it is important to mention that the research outcomes will only be relevant and representing the firms which will be accessed for collecting data and that the subsequent outcomes may not be relevant for other firms. As a result, it would be inappropriate to expect that this piece of research will highlight the overall IFRS compliance prevalent throughout China. Research Ethics Research ethics are important for professionally carrying out the process of research. The researcher will obtain the free-consent from the respondents. Before obtaining the free-consent, the respondents will be briefed about the prime objective of this research. And for this objective, the researcher will personally visit to the potential respondents. However, in this regard, it is relevant to mention that the researcher will take into confidence the higher authority in the potential firms and the higher authority will be provided all relevant information that is essential to prove the validity of this piece of research. Subsequently, data confidentiality will not be violated. After collecting all the data from the respondents, the researcher will ensure that the data will not be shared with the third party which is unauthorised to receive an access to such kind of confidential information. It will be the responsible of the researcher to preserve the collected data though putting them under a safe custody. Results The results will be collected from the primary research. From the primary research, the researcher will be able to process the collected data and deduce the most prominent results. Subsequently, the prominent results will be provided in the shape of findings. In this regard, it is important to mention that this section will only cover and detail the main findings and no discussion or analysis will be carried out. And through this depiction, the researcher and readers will be in a position to understand the level of current IFRS compliance in China and all those challenges that make it hard for the firms to effectively comply with the firms will also be clearly marked and highlighted as well. Discussions of results The discussion section will discuss and analyse the results. In this section, all highlighted and prominent results will be included for carrying out the process of discussion. Subsequently, in this section, the researcher will apply mixed methodology so as to find certain outcomes from the studies besides satisfying the research objectives. Moreover, in the discussion process, the researcher will incorporate the data provided in the literature review. This inclusion is important as it will highlight all those factors that will indicate the current progress on the matter of IFRS compliance. At the same time, this section will also highlight those actual problems and challenges that are currently being faced by the Chinese firms. Also, this section will also highlight the positive side of IFRS compliance and their benefits to the firms as it will balance the entire chapter. At the same time, this section is crucial as the major findings can be further elaborated through the use of interpretivism. For example, in the research questionnaire, some questions will ask for providing reasons for preferring IFRS over CAS. In this type of question, the researcher will be required to use one’s own subjective judgement so as to extract the relevant information which is inbuilt to the answers selected by the respondents. Conclusion and recommendations Globally, IFRS are being enforced as they are global in nature and transparent as well. With regard to the IFRS in China, the paper will highlight all those changes and issues that are being practically observed and experienced by the Chinese firms. In this regard, the most contentious issue, such as dual compliance in which national and international accounting standards, is the most important issue. At the same time, separating regulatory control from the Chinese government and making it as an independent body will also be an important issue that has tremendous effect on overall compliance with IFRS. More specifically, the Chinese Ministry of Finance controls the accounting standards which are totally opposite to the central theme of the market economy. On the other hand, the literature review highlights that the political intervention is common in the Chinese state owned enterprises and it is this intervention that has been identified as a hindrance for full compliance with the IFRS. Moreover, after issuing accounting standards, which comply with the IFRS framework by the Chinese Ministry of Finance, still path to full compliance is patchy and requires more active support from all stakeholders. References Avery, M., Jinqing, C., Min, Z. (2009). China’s Emerging Financial Markets: Challenges and Global Impact. Singapore: Wiley. Chen, J., & Yao, S. (Eds.). (2006). Globalisation, Competition and Growth in China. London: Routledge. DeFond, M., Gao, X., Li, O.Z., & Xia, L. (2014). Did China’ Adoption of IFRS Attract More Foreign Institutional Investment? Available: http://ssrn.com/abstract=2426484 Accessed: 2 January, 2015 Gillis, P. (2014). China Accounting Blog: News and Opinion on Accounting in China. Available: http://www.chinaaccountingblog.com/weblog/ifrs-convergence-in-china.html Accessed: 2 January, 2015 Godfrey, J.M., & Chalmers, K. (2007). Globalisation of Accounting Standards. Cheltenham: Edward Elgar Publishing. Grand, S.J. (2011). Chinese Accounting Standards: An Introduction to CAS V IFRS. Available: http://www.sjgrand.cn/chinese-accounting-standards-introduction-cas-v-ifrs Accessed: 2 January, 2015 Griff, M. (2014). Professional Accounting Essays and Assignments. United Kingdom: Miracel Griff. Hussey, R., & Ong, A. (2005). International Financial Reporting Standards Desk Reference: Overview, Guide and Dictionary. New Jersey: Wiley. IFRS, (2014). IFRS Application Around the World: Jurisdictional Profile: People’s Republic of China. Available: http://www.ifrs.org/Use-around-the-world/Documents/Jurisdiction-profiles/China-IFRS-Profile.pdf Accessed: 2 January, 2015 International Accounting Standards, (2014). Preface to International Financial Reporting Standards. Available: http://www.iasplus.com/en/standards/other/preface Accessed: 2 January, 2015 International Accounting Standards, (2014a). Financial Reporting Framework in China. Available: http://www.iasplus.com/en/jurisdictions/asia/china. 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