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Enoch Yiu

A leading accountant has warned that differences in accounting standards between China and the rest of the world could pose problems for mainland companies wanting to tap funds from overseas investors.

David Sun Tak-kei, chairman of assurance & advisory services for Ernst & Young, said China's domestic accounting standards were very different from the International Accounting Standards (IAS), issued by the international accounting organisation.

The IAS standards are used by many advanced markets in Europe and Asia including Hong Kong.

But not all markets accept IAS, including China and the US, which have domestic standards that are significantly different.

A report by the world's seven largest accounting firms revealed that Hong Kong's domestic accounting standards were moving towards those of the IAS over the past year, but China and Taiwanese standards remained very different from the IAS.

Mr Sun encouraged China and Taiwan to speed up moves to bring their standards more into line with the IAS.

This would be particularly important for China carrying out its market reform plans, if it wanted more mainland companies to go overseas for listing, or if it wanted to open up the mainland market for foreign investors.

'Foreign investors find it very hard to understand the financial statements of mainland companies because the accounting standards used in China are so different from International Accounting Standards,' he said. 'This has created a lot of confusion and misunderstanding about the mainland companies' financial situations.'

He cited the example of mainland airline company China Eastern Airlines, which listed its shares in Hong Kong, China and the United States.

It has to issue three financial statements complying with domestic China accounting standards, required by China; the IAS, required in Hong Kong; and the US standards, known as GAAP.

Based on Chinese standards, China Eastern Airlines reported a profit attributable to shareholders of 20 million yuan (about HK$18.7 million) for the year to December 2000.

It earned 175 million yuan based on the IAS standard and 734 million yuan as according to the GAAP.

'This is a typical example of different accounting standards creating a lot of confusion for investors.'

He said IAS differed in 12 major areas from China's accounting standards.  He said the international accounting body had urged more stock markets to accept IAS for cross-border listings.

Also, it would be important for a domestic accountancy body to adjust domestic standards to be more in line with international standards.

'China would like to have more mainland companies raise money from the international market as part of its market reform plans,' he said.

'These market reforms would be difficult unless China is moving more of its accounting standards towards to the IAS.'



Standards gulf hurting chase for investors