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Disharmony in international accounting standards setting: The Chinese approach to accounting for business combinations

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  • Baker, C. Richard
  • Biondi, Yuri
  • Zhang, Qiusheng

Abstract

The paper addresses two distinct aspects of disharmony in international accounting standards setting. The first aspect relates to the political economic context of financial accounting standards. This is illustrated by the Chinese standards setters’ decision to allow the pooling of interests method of accounting for business combinations despite the prohibition of this method by both the FASB and the IASB. This decision by the Chinese standards setters appears to have been based on political economic factors related to the need for industrial reorganization in China rather than a desire to serve the needs of global capital markets. The second aspect of disharmony relates to the role played by differential understandings of the fundamental objectives of financial reporting in an international context. The IASB's goal of producing one set of global accounting standards to serve the needs of global capital markets has led to a reduction in the number of permissible accounting methods and a move towards the fair value accounting model. In particular, the IASB concluded that the acquisition method of accounting for business combinations should be the only method allowed for business combinations. In contrast, the Chinese standards setters have recognized the existence of both mergers and acquisitions, and in response they created two different methods of accounting for business combinations. Effectively, the Chinese standards setters developed an alternative approach to accounting for business combinations which challenges the IASB's goal of achieving international accounting convergence through the fair value model.

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  • Baker, C. Richard & Biondi, Yuri & Zhang, Qiusheng, 2010. "Disharmony in international accounting standards setting: The Chinese approach to accounting for business combinations," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(2), pages 107-117.
    • Handle: RePEc:eee:crpeac:v:21:y:2010:i:2:p:107-117
    DOI: 10.1016/j.cpa.2009.11.004
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    2. Ross Taplin & Yafang Zhao & Alistair Brown, 2014. "Failure of auditors: The lack of compliance for business combinations in China," Regulation & Governance, John Wiley & Sons, vol. 8(3), pages 310-331, September.
    3. Hopper, Trevor & Lassou, Philippe & Soobaroyen, Teerooven, 2017. "Globalisation, accounting and developing countries," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 43(C), pages 125-148.
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    5. Zhang, Eagle & Andrew, Jane, 2016. "Rethinking China: Discourse, convergence and fair value accounting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 36(C), pages 1-21.
    6. Nölke Andreas, 2013. "A Political Economy Explanation for Country Variation in IFRS Adoption – A Comment on ‘The International Politics of IFRS Harmonization’ by K. Ramanna," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(2), pages 1-8, January.
    7. Noriyuki Tsunogaya & Parmod Chand, 2012. "The Complex Equilibrium Paths towards International Financial Reporting Standards (IFRS) and the Anglo-American Model: The Case of Japan," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 2, pages 117-137, December.
    8. Peipei Pan & Chris Patel, 2018. "The Influence of Native Versus Foreign Language on Chinese Subjects’ Aggressive Financial Reporting Judgments," Journal of Business Ethics, Springer, vol. 150(3), pages 863-878, July.
    9. Kusano, Masaki & Sakuma, Yoshihiro & Tsunogaya, Noriyuki, 2016. "Economic consequences of changes in the lease accounting standard: Evidence from Japan," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(1), pages 73-88.
    10. Tsunogaya Noriyuki & Okada Hiromasa & Patel Chris, 2011. "The Case for Economic and Accounting Dualism: Towards Reconciling the Japanese Accounting System with the Global Trend of Fair Value Accounting," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(2), pages 1-56, October.
    11. Ramanna Karthik, 2013. "The International Politics of IFRS Harmonization," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(2), pages 1-45, January.
    12. Natalia Aversano & Ferdinando Di Carlo & Giuseppe Sannino & Paolo Tartaglia Polcini & Rosa Lombardi, 2020. "Corporate social responsibility, stakeholder engagement, and universities: New evidence from the Italian scenario," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(4), pages 1892-1899, July.
    13. Helen Hong Yang & Colin Clark & Changyu Wu & Alan Farley, 2018. "Insights from Accounting Practitioners on China's Convergence with IFRS," Australian Accounting Review, CPA Australia, vol. 28(1), pages 14-27, March.
    14. Francesco Bellandi, 2023. "Business Combinations under Common Control: The Gain/loss Group Perspective. What the IASB Project Leaves Unaddressed," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(11), pages 1-59, February.
    15. Ortiz Horacio, 2015. "A Comment on “The Institutional Transformation of China’s Stock Exchanges: A Comparative Perspective” by Kay Lyu (AEL: A CONVIVIUM, 2015)," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 5(1), pages 91-97, March.
    16. Magdalena Janowicz, 2021. "Business Combination Under Common Control (BCUCC) - What Kind of Disclosure is Enough? The Polish Experience," European Research Studies Journal, European Research Studies Journal, vol. 0(2B), pages 1004-1013.

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