Mainland accounting and auditing standards are expected to see full convergence with international standards later this year. With the signing of a joint declaration between Hong Kong and the mainland's accounting standards bodies, Chinese accounting standards are expected to fully converge with the rest of world in the first half of this year at the latest. Last December, the Hong Kong Institute of Certified Public Accountants (HKICPA) signed a joint declaration with the China Accounting Standards Committee and the China Auditing Standards Board to mark the completion of a year-long comparison between the two sets of standards. The joint comparison exercise, which started at the beginning of last year, involved professional accountants and auditors across the border. They spent hours going through Chinese accounting and auditing standards line by line, comparing them against the Hong Kong standards. Since 2005, the accounting and auditing standards of Hong Kong have been, word-for-word, the same as International Financial Reporting Standards (IFRS) laid down by the London-based International Accounting Standards Board (IASB), a code which is used, or allowed, in most of the capital markets worldwide. According to the joint declaration, the financial statements prepared with mainland standards should, after reconciling their differences, achieve substantially the same effect as Hong Kong standards. In other words, the full convergence between Hong Kong and mainland accounting and auditing standards will connect mainland business to the global capital market. Winnie Cheung Chi-woon, chief executive of the HKICPA, said the joint declaration had removed an information barrier for mainland companies that wanted to access global capital markets. 'This means accountants working in listed mainland companies will only need to prepare one set of numbers instead of two. The investors and management level will read the same set of data. 'China is the first major economy in the world [not synchronised with IFRS] to make such a substantial move towards international accounting and auditing standards. It takes a lot of courage and commitment.' However, two differences remain in the mainland standards, the first one being the assessment of impaired assets. Under the mainland standards, reversal of impairment losses, which recognise the loss in value of a fixed asset not related to its day-to-day use, is disallowed with no negotiations or exceptions. The international standard allows reversal of any impairment losses under certain clear conditions, except for goodwill. The second difference is the more controversial treatment of related party disclosure, which requires all transactions between related parties to be reported in the financial report. This is expected to be a big issue in the mainland, where most of the sizable enterprises are at least partially state-owned and widely disparate companies are linked through their state-owned parent. There is concern that, if implemented in the mainland, the sheer amount of record-keeping needed to comply would bury most corporate finance departments under a sea of paperwork. But the difference regarding related party disclosure is likely to be eliminated later this year, should the IASB pass a consultation paper, moved by its mainland members, to allow flexibility in dealing with state-owned enterprises. Ms Cheung said it was likely that the motion should be passed. 'After the election of a Chinese member to the board of the IASB in July last year, there are now Chinese, or Hong Kong representatives, sitting on each level of the decision-making mechanisms of the IASB. 'With its increasing influence on the global market, China is now having a bigger say on issues. This is not only good for China, but also for Asia as a whole.' She said the existing standards set up by the IASB were based on the standards in major capital cities, such as London, New York and Tokyo, which might not be applicable to the other economic models such as those in the mainland. 'It will not be possible to record every transaction between state-owned companies in the mainland,' Ms Cheung said. 'The world is becoming increasingly integrated, and there is need for a global language. However, as long as we are speaking in the same language, it should not matter that we are speaking it with an Asian accent.' On the other hand, she said that the joint declaration itself, and the progress towards the full convergence of mainland and Hong Kong accounting and auditing standards, would strengthen Hong Kong's position as the regional financial hub. For example, the lack of clarity of local rules, as perceived by international investors, has until now resulted in discounted share price of mainland companies. But with the convergence, the information barrier is expected to be removed. 'China is a huge market. The convergence of standards will make it easier for mainland companies to be listed in Hong Kong or overseas,' Ms Cheung said. 'It will help overseas investors to understand the capital market of the mainland better. As the mainland government has always been committed to using Hong Kong as the place for external capital exchange, the convergence should attract more investment in the mainland as well as Hong Kong, which is familiar with international and domestic standards.' It will also be easier for Hong Kong's accountants to practice in the mainland as the joint declaration includes provisions for examination exemptions for Hong Kong Certified Public Accountants who wish to qualify and work in the mainland. The HKICPA, as the sole body authorised to register and grant practicing certificates to Certified Public Accountants in Hong Kong, has close to 27,000 members, and more than 12,000 registered students. 'The joint declaration has established a mechanism for ongoing maintenance and adjustments of the converged standards. It opens up opportunities for accountants in Hong Kong. Our mainland counterparts need our help.'