Principles familiar to investors worldwide put country on a level playing field

The development of new mainland accounting standards is being viewed as an important step for the growth of mainland China's economy and its place in the world's increasingly integrated capital markets.

And the adoption of the new accounting system under the mainland's Accounting Systems for Business Enterprise (ASBE) also brings about substantial convergence between the mainland's reporting standards and International Financial Reporting Standards (IFRS), as set by the International Accounting Standards Board (IASB).

The ASBE system includes one 'basic standard' based on the principles of IFRS, on top of 38 separate standards for different business sectors and 48 auditing benchmarks. The standards were adopted by more than 1,400 listed companies on January 1 last year and are scheduled to be extended to all medium-to-large enterprises over the next three years.

Previously, the mainland used a rules-based accountancy system based on a set of specific details designed to address potential contingencies. The use of principles-based accounting standards is based on 'fair value' and is designed to produce accounting statements that more accurately reflect a company's actual performance.

To help the mainland implement its accounting standards, Hong Kong accountancy professionals and industry bodies, including the Hong Kong Institute of Certified Public Accountants, worked closely with its mainland counterparts to produce a convergence system which is closely aligned with the Hong Kong Financial Reporting Standards system of the IFRS.

Following a year-long comparison and convergence project, mainland financial statements are now prepared in accordance with the mainland's ASBE. They are essentially the same as those prepared in accordance with the Hong Kong Financial Reporting Standards.