Table of Contents Introduction 2 Population 2 Economic Structure and Major Industries 2 Major Firms 4 China’s Stock Market 6 China Securities Regulatory Commission 7 Legal Enforcement of IFRS 8 Summary of contents of financial statements 9 Transition Process of Accounting Standards 10 Auditing Standards 11 Full convergence with International Standards 11 Verification of Capital Contribution 13 Comparison of China’s old GAAP and IFRS 14 Accounting Education in China 15 The Chinese Institute of Certified Public Accountants 15 The CICPA Overview 15 The CICPA Examination 16 Accounting Student 18 China’s Cultural Influences on Accounting 19 Appendix 1. Comparison of CASs and ISAs (As of 2006) 22 Appendix 2. Accounting Firms in China 24

Introduction
Population
In 2012, China's population amounts to 1.3 billion – an increase of 365 million since 1980. Yet, population is growing at a decelerating pace and should reach its peak in less than two decades. Current methods of population control will be relaxed as the growth of population slows. The fertility rate is presently 1.6 births per female (below replacement level) and is expected to remain at that level in the medium term.
The median age is steadily rising and by 2011 it was 35.5years –16.9 years greater than the figure for 1980. In fact, population aging is occurring more quickly in China than in most other countries. The country's working age population will begin to fall by 2017. By 2040, there could well be 100 million Chinese over 80 years old – more than the current worldwide total. This demographic imbalance will have dramatic and fundamental consequences for the country's economic and social character. Improvements in social security and healthcare are essential. In recognition of the extent of China's population ageing, Beijing plans to spend RMB890 billion in 2009-2012 to improve healthcare.
Economic Structure and Major Industries
Industry accounts for about 46.8% of China's GDP (2010 est.). Major industries are mining and ore processing; iron; steel; aluminum; coal; machinery; textiles and apparel; armaments; petroleum; cement; chemicals; fertilizers; consumer products including footwear, toys, and electronics; automobiles and other transportation equipment including rail cars and locomotives, ships, and aircraft; telecommunications equipment; commercial space launch vehicles; and satellites. China has become a preferred destination for the relocation of global manufacturing facilities. Its strength as an export platform has contributed to incomes and employment in China. The state-owned sector still accounts for about 40% of GDP (2010 est.). In recent years, authorities have been giving greater attention to the management of state assets--both in the financial market as well as among state-owned enterprises--and progress has been noteworthy. (http://www.state.gov/r/pa/ei/bgn/18902.htm)
Agriculture employs 33.8% of the workforce. Farm output grew by 4.6% in 2011. Rice is the main food crop, but tea, sugar and fibre crops are also important cash earners. In addition, China is the world's biggest producer and consumer of cotton. Farm output is expected to rise (in real terms) by more than 25% during the decade but looming water shortages could prove to be a serious bottleneck. Nationally, the agriculture sector consumes about 70% of China's surface water but more than one-fifth of water resources are unfit even for farming. The area sown for grain should increase in 2011 and output will rise by 2.5 billion kg.
Manufacturing accounts for 30.0% of GDP and employs 14.2% of the workforce. In 2009, China became the world's largest car market but annual sales are expected to grow by 8-10% in 2012. Car penetration in China is still modest, even when compared with countries such as Brazil or Russia. Beijing announced that in 2012 it will withdraw support for foreign capital in auto manufacturing in an effort to support the development of domestic auto makers. Many other manufacturers are trying to move up the value added chain but China's shady reputation on intellectual property makes foreigners hesitant to transfer technology to Chinese partners. Domestically, state-owned firms continue to dominate the economy, accounting for an estimated 40% of non-agricultural output.
Services make up 38.6% of GDP. Banks are now more commercially oriented and non-performing loans remain at modest levels. The regulatory infrastructure of the banking system has been significantly improved. The real value of tourist receipts is expected to have risen by 7.4% in 2011
Major Firms
PetroChina- PetroChina Company Limited (“PetroChina”) is the largest oil and gas producer and distributor, playing a dominant role in the oil and gas industry in China. It is not only one of the companies with the biggest sales revenue in China, but also one of the largest oil companies in the world. PetroChina was established as a joint stock company with limited liabilities by China National Petroleum Corporation under the Company Law and the Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies on November 5th, 1999. The American Depositary Shares (ADS) and H shares of PetroChina were listed on the New York Stock Exchange on April 6, 2000 (stock code: PTR) and the Stock Exchange of Hong Kong Limited on April 7, 2000 (stock code: 857) respectively. It was listed on Shanghai Stock Exchange on November 5, 2007 (stock code: 601857)
China Construction Bank is a leading commercial bank in China providing a comprehensive range of commercial banking products and services. Their business consists of three principal business segments: corporate banking, personal banking, and treasury operations. They are among the market leaders in China in a number of products and services, including infrastructure loans, residential mortgage, and bank cards. They have an extensive customer base, with established banking relationships with many of the largest business groups and leading companies in industries which are strategically important to China's economy. They have an extensive network of approximately 13629 branch outlets. In addition, we maintain overseas branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo, Seoul, New York, Ho Chi Minh City and Sydney.
China Petrochemical Corporation (Sinopec Group) is a super-large petroleum and petrochemical enterprise group established in July 1998 on the basis of the former China Petrochemical Corporation. Sinopec Group is a state-owned company solely invested by the State, functioning as a state-authorized investment organization in which the state holds the controlling share. Headquartered in Beijing, Sinopec Group has a registered capital of RMB 182 billion. China Petroleum & Chemical Company (Sinopec Corp.), controlled by Sinopec Group, issued H-shares and A-shares at overseas and home respectively in October 2000 and August 2001 and was listed on stock markets in Hong Kong, New York, London and Shanghai.
China Railway Group is a super-large integrated construction group that encompasses infrastructure construction, survey, design and consulting services, engineering equipment and component manufacturing, property development and other businesses.
China Railway Group Limited has 46 subsidiaries, including 28 wholly owned subsidiaries, 15 holding subsidiaries, 4 branch companies and 3 joint venture subsidiaries. In the year of 2005 and 2006, China Railway was the fourth and third largest construction company in the world, respectively. In 2007, it was ranked 342nd in the Fortune Global 500 companies, and listed the 417th in the World’s 500 Most Influential Brands and the 13th in China’s Top 500 Enterprises.

China’s Stock Market
The Chinese stock market was established in 1980s. China’s two stock exchanges, the Shanghai Stock Exchange and Shenzhen Stock Exchange, were established in November 1990 and December 1990, respectively. Chinese listed firms have multiple classes of shares outstanding: shares listed in mainland China and traded in RMB (A shares), shares listed in mainland China and traded in foreign currencies (B shares), and shares listed or cross-listed overseas (for example, H shares listed on the Hong Kong stock exchange; ADRs if listed in the US). Since 1996, the stock market has been playing an important role in the national economy as it was defined as a major source of refinancing the state-owned enterprises (SOEs) sector.
Despite stricter regulations and some improvement in operational efficiency, the Chinese stock market continues to be tarnished by problems of mismanagement. A Code of Corporate Governance for Listed Companies was enacted by the China Securities Regulatory Commission in 2002 as part of an initiative to improve the reporting of inflated profits and the delisting of loss-making companies. Listed companies are required to undergo supplementary audits by the major international auditing firms. In general, opportunities for domestic firms and individuals to hold foreign-currency denominated stocks and bonds (the B share market) remain heavily circumscribed. Although still constrained, opportunities for foreign firms and individuals to purchase Chinese-currency denominated assets (the A share market) are gradually increasing. More than 100 of China’s 500 largest companies, including China Telecom, Anshan Iron and Steel Company, and Handan Iron and Steel Company, have been publicly listed, although state institutions still hold around 60% of shares in such enterprises. Big state corporations, including the four SOCBs (see above), have also listed their shares in international markets. China’s other capital markets remain underdeveloped, although the country’s WTO accession is one factor that will help enhance bond, insurance and securities markets. Diversification within the interbank market has strengthened its role as a source of capital for domestic banks. Meanwhile, although the corporate bond market remains small, the National Financial Work Conference has signaled that the issue of corporate bonds would play an increasingly important role, as China’s bond markets developed.
China Securities Regulatory Commission
The China Securities Regulatory Commission (CSRC) was established in 1992, shortly after the establishment of China’s two stock exchanges. The CSRC is under the direct leadership of the State Council, the highest executive organ of State power and administration in China (1). The CSRC carries out regulation and supervision of the securities and futures markets nationwide according to applicable laws and regulations.
The CSRC consists of a chairman, five vice-chairmen, and three assistant chairmen. In addition to the senior management listed above, the CSRC holds a staff of over 2,500 employees. The CSRC is headquartered in Beijing, but most of the staff works in the 36 regional offices that are located in various regions throughout the country. The CRSC comprises 21 functional departments, 4 affiliated institutions, and 4 special committees.
The CSRC was modeled after two regulatory bodies: the Securities and Exchange Commission (SEC) in the United States and the Securities and Futures Commission (SFC) in Hong Kong. It performs regular reviews and random inspections of companies and securities firms. It also investigates allegations of company and securities fraud and malpractice. The allegations come from investors, current and former employees, insiders, newspapers, stock exchanges, legal proceedings, and police investigations.
If the CSRC finds that a wrongdoing has been committed, it will publish the information in a report that is shown in national newspapers. The CSRC has four different categories for penalizing companies: public criticism, public condemnation, official warning, and monetary fines. The CSRC may also suspend trading and withdraw licenses from securities firms. In regards to individuals, the CSRC can take actions that result in criminal prosecutions with strict punishments that include the death penalty.
In addition to its supervision and enforcement responsibilities, the CSRC is also responsible for developing rules and regulations for the securities market that are based on public law. Also, the CSRC formulates the qualification criteria and codes of conduct for securities practitioners and fund employees.
Legal Enforcement of IFRS
The Chinese capital market is segmented into two different categories: A-shares and B-shares. A-shares can only be owned and traded by Chinese citizens while B-shares can be owned and traded by anyone. The regulations that apply to Chinese firms depend on what type of security they issue. Companies that issue A-shares must develop financial statements that comply with Chinese GAAP only, while companies that issue B-shares must develop a set of financial statements that comply with IFRS and a set that comply with Chinese GAAP. The companies that issue B shares must also prepare a line-item reconciliation of earnings under the two standards.
Chinese law states that the financial statements that are issued under the Chinese GAAP can be audited by a local auditor. However, the financial statements that are issued under IFRS must be audited by an international reputable auditor, like a Big 4 firm. Also, the CSRC may require an international auditor to review the Chinese financial statements when a company applies for new equity offerings in the domestic market.
The audit opinions of international auditors are more highly regarded then those of local auditors since the independence of Chinese local auditors can be compromised due to the weak institutional environment in various areas throughout China. Evidence of this occurred in the early 2000s when the CSRC supported a significant increase in international audit support in hopes that the quality of auditing in China would improve. From 1999 to 2002, local CPA firms declined from 106 to 71 due to increased competition from international firms. However, research shows that the international auditors actually did not outperform the local CPA firms in increasing IFRS compliance.
In 2001, the CSRC implemented a compulsory policy that is regarded as the most influential regulatory enforcement effort on IFRS compliance in China. The policy states that management must choose the same accounting policies for both Chinese GAAP and IFRS, where possible. Thus, the only differences between the two sets of financial statements would be the differences in Chinese GAAP and IFRS. The policy was created to increase national convergence with the international accounting standards. Research shows that the implementation of the policy led to a clear decline in line-item earning differences between financial statements based on Chinese GAAP and corresponding financial statements based on IFRS.
Summary of contents of financial statements

Transition Process of Accounting Standards
In the early 1990s, with the establishment of Chinese stock exchanges, foreign investors in the stock market had difficulty interpreting the financial statements of Chinese firms and the restatement of the financial statements into international terms was a costly process (Winkle et al, 1994). In this sense, the existing socialist accounting model needed to shift to a market oriented model to attract foreign investors. Since the country’s economic reform, the MOF has developed Chinese accounting standards that improve the quality of Chinese firm’s financial reporting. To achieve this purpose, the MOF made an effort to converge Chinese GAAP with internationally recognized accounting standards (Chen, Gul, & SU, 1999). In 2005, the MOF officially clarified its goal of convergence with IFRS (IASB, 2005).
On February 16, 2006, the MOF announced that it promulgated a new basic accounting standard and 38 new Chinese Accounting Standards (CASs) that are substantially in line with IFRS, with a few exceptions. The MOF required all listed companies to start using the new CASs in their 2007 financial statements. The MOF expanded the use of the new standards to all state-owned enterprises starting in 2008, and then to all large and medium-sized companies starting in 2009.
Peng et al. (2010) divides this development and convergence progress into four stages. They consider the first stage (from 1992 to 1997) a revolutionary change in Chinese accounting because the MOF introduced a market oriented accounting model for the first time. During the second stage (from 1998 to 2000), the MOF promulgated the Accounting System for Joint Stock Limited Enterprise and ten specific CASs. The third stage (from 2001 to 2006) is represented by the issuance of the Accounting System for Business Enterprises, which replaced the 1998 Accounting System, and 16 CASs (6 newly issued, 5 revised, and 5 original standards). The fourth stage (from 2006) is initiated by the issuance of the Accounting Standards for Business Enterprises (ASBEs), which consists of a revised Basic Standard and 38 specific standards.
Peng et al. documents that since 1992, the MOF has moved Chinese GAAP toward convergence with IFRS through the issuance of a series of Chinese GAAP that enhanced the level of successful convergence, which refers to fully or substantially converged items, with IFRS (20% in 1992, 35% in 1998, 49% in 2001, and 77% in 2006). The convergence has been carried out both through the direct import of standards from IFRS (74 of 123 items, 60%) and through progressive changes to Chinese GAAP (49 of 123 items, 40%).
According to Roadmap for Continuing and Full Convergence of the Chinese Accounting Standards for Business Enterprises (ASBE) with the IFRS, the MOF targets 2011 as the year for completion of the convergence program of the ASBE and IFRS, and all large and medium-sized enterprises are required to use the revised standards as of 2012.
Auditing Standards

Full convergence with International Standards
The development of socialist market economy, privatization, and large inflows of foreign investment requires the innovation of a Chinese accounting system in harmony with international practice. To reinforce the confidence of investors, to regulate the performance of audits, and to harmonize with international practices, China began to issue 10 independent auditing standards with the first batch being effective from January 1, 1996. The second and third batches of 17 standards, 5 practice pronouncements and 3 related general standards on professional ethics, quality control and continuing professional education became effective from January 1, 1997, and July 1, 1999, respectively (Lin and Chan, 2000).
On December 8, 2005, the Chinese Auditing Standards Board (CASB) and the International Auditing and Assurance Standards Board (IAASB) released a joint statement in which the CASB indicated that the fundamental principle of drafting Chinese auditing standards is to improve the Chinese auditing standards system and to accelerate its convergence with the IAASB’s ISAs. As an outgrowth of this joint statement, the CICPA published new 48 Chinese Auditing Standards (CASs) that adopted nearly all International Standards on Auditing (ISAs) in 2006 (Deloitte, 2006). In China, the CICPA is responsible for publishing auditing guidelines, but it must seek approval from the MOF before any auditing guidelines can be published.
According to a press release issued on November 10, 2010, the CASB completed the revision of CASs, and achieved full convergence with the clarified ISAs. During the international convergence process, the CASB made limited additions it considered necessary and maintained some standards dealing with matters that are not specially covered in ISAs to reflect China’s unique circumstances and business requirements, such as standards for the verification of capital contributions and communications between predecessor and successor auditors. The IAASB admits that such additions are acceptable if only they don’t conflict with ISAs.
Chong (2008) expects that adopting international standards may help streamline the audit approaches and reporting between the primary and secondary auditors in China. The primary auditors, based outside China, would have little or no difficulty subcontracting their audit assignments to the secondary auditors, their Chinese counterparts based in China.
The revised CSAs were officially released in early November 2010, and are effective for audits of financial statements for period beginning on after January 1, 2011.
Verification of Capital Contribution
Verification of capital contribution is peculiar to China. CAS defines verification of capital contribution as the verification of the truthfulness and legitimacy of the entity’s paid-in capital and its relevant assets and liabilities. In China, verification of capital contribution is a legal requirement when: (1) a new business is set up that requires each party to pay its contribution within the times as fixed in the contract; (2) the change of legal person, merger, or demerger, increases in and assignments of registered capital; and (3) contracting parties wish to change their registered capital. For instance, equity joint ventures in China are required to have a registered capital to which all parties must contribute. After each party makes all contributions, an accounting firm is called upon to verify the contributions and issue a certificate of verification. The guidelines require the auditor to carry out necessary verification procedures and obtain sufficient appropriate evidence for the expression of an opinion and the issuance of a verification report. The verification report should contain two paragraphs: one describing the scope of the verification and one expressing the auditor’s opinion on the verification of capital contribution.
However, there is no equivalent ISA in this area. Verification of capital contribution is usually not a statutory audit in the developed countries such U.S., U.K., Canada, and Australia, even though auditors sometimes have to verify capital contributions under various regulatory requirements.

Comparison of China’s Old GAAP and IFRS

As stated previously, China issued its latest set of accounting standards in February of 2006. Although the standards are very similar to IFRS, certain modifications have been made to reflect China’s unique circumstances and environment. Most of the differences between the two standards come as a result of the Chinese limiting some of the options that are allowed in IFRS. Therefore, companies that are compliant with the Chinese standards will generally be compliant with IFRS, as well. A listing of the key differences between the two standards is presented below. * ASBE 2 only allows the equity method to be used when accounting for jointly controlled entities. IAS 31 allows both the equity method and proportionate consolidation to account for such entities. * ASBE 3 allows the cost model or the fair value model when measuring land use rights that is held for rental property and classified as investment property. Under IAS 40, enterprises are allowed to classify such land rights as investment property only if the fair value method is adopted. * ASBE 4 and ASBE 6 require the cost model to be used to measure fixed assets (excluding investment properties) and intangible assets, respectively. However, the comparable international standards (IAS 16 and IAS 38) allow the use of both the cost model and the revaluation model. * ASBE 5 requires the cost model to be used to measure biological assets unless there is evidence that the fair value of the assets can be obtained reliably on a consistent basis. IAS 41 requires that the fair value be used to measure biological assets unless evidence shows that it cannot be obtained reliably. * ASBE 8 prohibits the reversal of all types of types of impairment losses whereas IAS 36 only prohibits the reversal of impairment loss for goodwill. * ASBE 17 requires the capitalization of all borrowing costs that meet the criteria for capitalization. IAS 23 provides an option to expense all borrowing costs. * ASBE 30 states that the expenses of the income statement must be shown by function. IAS 1 allows the same expenses to be presented by function or by nature. * ASBE 31 requires the direct method to be used when reporting cash flows from operating activities. An enterprise must also develop a note that shows the reconciliation of profit to net cash from operating activities. Under IAS 7, an enterprise is only encouraged to use either the direct method or the indirect method. * ASBE 36 exempts state-controlled entities from being regards as related parties simply because they are state-controlled. No such exemption exists under IAS 24.

Accounting Education in China
For bachelor’s degree, students must take several accounting, management, math, and finance classes even though the required courses are a bit different depending on colleges. Main courses of B.A. Accounting at Nanjing Audit University include: Economics, Management, Statistics, Management Information System, Economic Law, Tax law, Marketing, Monetary and Banking, Financial Accounting, Intermediate Accounting, Advanced Accounting, Cost Accounting, Management Accounting, Auditing, International Comparative Accounting, Accounting Information System, Accounting Statement Analysis, Research of Accounting Cases, Accounting System Design, Financial Management, etc. (English.nau.edu.).
For master's degree, students should take more theoretical classes including accounting history and modern accounting theory. Generally, Master of Professional Accounting (MPAcc in short) programs are more profession-oriented in terms of education objective, admission policy, course content, educational pattern and quality standard. Whereas, Master in Accountancy programs are more academic and emphasize more on research. (http://www.rbs.org.cn/templates/T_eng_new_list/index.aspx?nodeid=280)
The Chinese Institute of Certified Public Accountants
The CICPA Overview
The Chinese Institute of Certified Public Accountants (CICPA) is an organization under the guidance of the Ministry of Finance and the Council. It was founded in November 1988 in accordance with The Law of the People’s Republic of China for Certified Public Accountants and The Regulations for the Registration and Administration of Social Organizations.
As of October 31, 2010, CICPA has nearly 180,000 individual members, with 95,378 practicing members and over 83,000 non-practicing members. (CICPA, 2011)
The CICPA Examination
The CPA National Examination Committee of the Ministry of Finance decided to reform the CPA examination system in early 2007, with a view to support the further implementation of the professional strategies. In accordance with the MOF’s decision and the CICPA’s reform action plan, the new examination system was launched in 2009.
The main characteristic of the new CPA examination system in China is that the examination consists of two stages: 1) Level 1: Professional stage
In this level, the examination primarily assesses whether examinees possess a good command of the professional knowledge as required of a CPA in public practice, as well as the basic skills and the professional ethics.
The 5 subjects under the old examination system are split, expanded, and combined. Level 1 examination consists of 6 subjects: Accounting, Auditing, Financial Management and Cost Management, Corporate Strategies and Risk Management, Economic Law, and Taxation Law 2) Level 2: Advanced stage
The Level 2 examination assesses whether examinees can integrate and apply the professional knowledge in practice, and whether examinees maintain the professional values, ethics and attitudes, as well as the capability of solving problems. Level 2 exam tests an integrated subject of all disciplines.
Examinees are only allowed to take up the examination of the advanced stage after he/she has passed the professional stage. As the advanced stage focuses primarily on examinees’ competency, it is suggested that examinees should gain adequate practical work experiences prior to sitting the second stage examination.
The two levels of examinations are held once a year. The CPA examination in China is a national unified examination and unlike the AICPA examination, there are no particular requirements for each province. The examination results of each of the 6 subjects in the professional stage are valid for 5 years. After successfully passing all the required subjects of the professional stage examination, the candidate obtains the “Certificate for Passing the Professional Stage Examination”. The integrated subject in the advanced stage should be accomplished within 5 years after obtaining the “Certificate for Passing the Professional Stage Examination”. After successfully passing the advanced stage examination, the candidate can obtain the “Certificate for Passing All Subjects”.

Accounting Student

China’s Cultural Influences on Accounting

China has had a long and rich history. A large portion of its traditional culture has been influenced by Buddhism, Confucianism, and Taoism. The culture that has built open over generations places high value in harmony and moderation. Radical transformations in China are not perceived favorably. Instead, Chinese culture advocates the importance of harmony and unity amongst the Chinese people, the environment, and the society.
The government policies that have been places in China over the years have largely been influenced by the nation’s culture. In recent years, China has been engaging in gradual transformation from a planned economy to a market economy. The Ministry of Finance in 2006 implemented new accounting standards. While the government understands the importance of IFRS in its accounting practices, China has until recently agreed upon a convergence path rather than completely adopting all standards. This point stresses the importance that the government places on a harmonious society. Harmony is viewed to incorporate the law in governing society and bringing about fairness and honesty.
Hofstede (1980) from Holland developed a model of culture as the collective programming of the mind that distinguishes the members of one human group from another. The four cultural dimensions that he identified were Individualism versus collectivism, Large versus small power distance, Strong versus weak uncertainty avoidance, Masculinity versus femininity. Collectivism dominates Chinese culture as opposed to individualism. Authority by an upper hand and the level of respect towards seniors is strongly accepted. This goes to show that there is a large power distance. Since Chinese people do not tolerate extreme changes, they would prefer to avoid a sense of avoidance. They view that everything has its own cycle eventually the cycle will itself die out. Lastly, culture values such as relationship and harmony in China point out that the country can be categorized as feminism as opposed to masculinity.
Based on the preceding four cultural dimensions identified by Hofstede, there is uniformity, secrecy, low professionalism, and high regulatory control in China. As an example of large power distance, in recent years that poor have become poorer, while the rich have become richer. This gap, mainly created from China’s transition from a planned economy to a market economy, has given opportunities to many privileged people to make a lot of money.
The vast majority of accountants in China abide by the many detailed regulations set forth in accounting standards. They lack the skills of judgment and self-discipline. These rules and standards direct the accountants how to act given different situations. However, since real life scenarios can be vastly different from what is written in accounting standards, Chinese Accountants tend to become clueless as to what actions to perform. The accounting regulations and laws implemented in China is set by the government. Private bodies and individuals rarely have any say on the design of accounting standards. In regards to Uniformity, this concept is highly correlated with uncertainty avoidance and low individualism. China’s acceptance of its enforcement regulations set for by the government also goes to show that uniformity is related to the degree of high power distance in the nation.
The concept of secrecy reflected in China portrays the fact that the financial information provided need not to be transparent. Since a majority of the enterprises in China are state-owned, the financial information which are produced are mainly used by the management of the same entities. The large power distance and low individualism in China contribute to the fact that financial information is not widely dispersed with the public.
With the introduction of the new accounting standards in 2006, there is a greater likelihood that there will be greater evidence of higher professionalism. This is mainly reflected by the new standards’ requirement of professional judgment by accounting professionals and the need for financial information to be useful for decision making. The new standards mandate enterprises present reliable and fair information to investors. Furthermore, the increase in the number of college graduates studying accounting will also help increase the level of high professionalism. The creation of a good moral standard can promote honesty amongst accountants, resulting in the production of fair and authentic financial information.

Appendix 1. Comparison of CASs and ISAs (As of 2006)

Chinese Auditing Standards | Equivalent International Standard | General Standard | 1 | General Standard for Assurance Engagements | ISA 120 | Auditing Standards for CPAs of China | 2 | No 1101 - Objective and general principles governing an audit of financial statement | ISA 200 | 3 | No. 1111 - Audit engagement letters | ISA 210 | 4 | No. 1121 - Quality control for audits of historical financial information | ISA 220R | 5 | No. 1131 - Audit working papers | ISA 230R | 6 | No. 1141 – Consideration of fraud in an audit of financial statements | ISA 240 | 7 | No. 1142 – Consideration of laws and regulations in an audit of financial statements | ISA 250 | 8 | No. 1151 – Communications with those charged with governance | ISA 260 | 9 | No. 1152 – Communications between predecessor and successor CPAs | | 10 | No. 1201 – Planning an audit | ISA 300 | 11 | No. 1211- Understanding the entity and its environment and assessing the risks of material misstatement | ISA 315 | 12 | No. 1212 – Consideration relating to entities using service organizations | ISA 402 | 13 | No. 1221 - Materiality | ISA 320 | 14 | No. 1231 – Procedures in response to assessed risks of material misstatement | ISA 330 | 15 | No. 1301 – Audit evidence | ISA 500 | 16 | No. 1311 – Supervision of physical inventory count | ISA 501 Part A | 17 | No. 1312 - Confirmations | ISA 505 | 18 | No. 1313 – Analytical procedures | ISA 520 | 19 | No. 1314 – Audit sampling and other means of testing | ISA 530 | 20 | No. 1321 – Audit of accounting estimates | ISA 540 | 21 | No. 1322 – Auditing fair values measurements and disclosures | ISA 545 | 22 | No. 1323 – Related parties | ISA 550 | 23 | No. 1324 – Going concern | ISA 570 | 24 | No. 1331 – Audit of opening balances on initial engagements | ISA 510 | 25 | No. 1332 – Subsequent events | ISA 560 | 26 | No. 1341 – Management representations | ISA 580 | 27 | No. 1401 – Using the work of other CPAs | ISA 600 | 28 | No. 1411 – Considering the work of internal auditing | ISA 610 | 29 | No. 1421 – Using the work of an expert | ISA 620 | 30 | No. 1501 – Auditors’ report | ISA 700R | 31 | No. 1502 – Modified auditors’ report | ISA 701 | 32 | No. 1511 - Comparatives | ISA 710 | 33 | No. 1521 – Other information in documents containing audited financial statements | ISA 720 | 34 | No. 1601 – Auditors’ report on special purpose audit engagements | ISA 800 | 35 | No. 1602 – Verification of capital contributions | | 36 | No. 1611 – Audit of financial statements of commercial banks | IAPS 1006 | 37 | No. 1612 – Inter-bank confirmation procedures | IAPS 1000 | 38 | No. 1613 – Relationship between banking supervisors | IAPS 1004 | 39 | No. 1621 – Special considerations for audit of small entities | IAPS 1005 | 40 | No. 1631 – Consideration of environmental matters in an audit of financial statements | IAPS 1010 | 41 | No. 1632 – Auditing derivative financial instruments | IAPS 1012 | 42 | No. 1633 – Effect of electronic commerce on the audit of financial statement | IAPS 1013 | Standard on Review Engagements for CPAs of China | 43 | No. 2101 – Engagements to review financial statements | ISRE 2400 | Standards on Other Assurance Engagements for CPAs of China | 44 | No. 3101 – Assurance engagements other than audits or reviews of historical financial information | ISAE 3000R | 45 | No. 3111 – Examination of prospective financial information | ISAE 3400 | Standards on Related Service for CPAs of China | 46 | No. 4101 – Engagements to perform agreed-upon procedures regarding financial information | ISRS 4400 | 47 | No. 4111 – Compilation of financial information | ISRS 4410 | Standard on Quality Control for CPA Firms | 48 | No. 5101 – Quality control of professional work | ISQC 1 |
(Source: Earnest & Young China, 2006)

ISA – International Standards on Auditing
IAPS – International Auditing Practice Statement
ISRE – International Standards on Review Engagements
ISAE – International Standards on Assurance Engagements
ISRS – International Standards on Related Services

Appendix 2. Accounting Firms in China
The accounting profession experienced robust revenue growth in 2010, reaching a record high of 37.5 billion RMB, an increase of 18 percent and higher than the growing pace of GDP. Revenues for the Top 100 were 61.6 percent of the profession, or 23.1 billion RBM. The top 10 domestic firms grew over 20 percent, which was way above the Big Four’s 4.24 percent.

By the end of 2010, excluding firms which are organized in the form of Chinese-Foreign cooperation, firms with securities practice qualification have established 64 subsidiaries, members or associates in Hong Kong or other overseas regions, generating revenue of 0.57 billion RMB, or 1.58 percent of the profession. The Top 100 employed a total of 24,968 certified public accountants, an increase of 8 percent. Average revenue per capita (ARPC) continued growth trend, reaching 340,000 RMB in 2010, increased by 34,000 RMB, or 11.53 percent.

Bibliography