Harmonisation of Accounting Practices and Corporate Governance--Evidence from China B-Share Companies

This study examines the impact of regulatory enforcement, in particular, an important Chinese government compulsory harmonization policy implemented in 2001, and corporate governance upon Chinese IFRS compliance. Using a sample of 104 Chinese B-share companies between 1999 and 2006, the study reveals that the decline of earnings difference between a firm’s financial statements under Chinese GAAP and IFRS is the result of the firm’s application of standards rather than the differences between the standards. The 2001 policy has played a primary role in promoting Chinese accounting convergence. Among the mechanisms of corporate governance, only audit committee has some effects on curbing management opportunisms in the application of Chinese GAAP, thus prompting Chinese IFRS compliance. The empirical evidence of this study supports two arguments. Firstly, institutional environment affects the quality of financial reporting rather than the accounting standards. Only when effective enforcement and the institutional environment support the implementation of accounting standards will a nation realise the harmonisation of its accounting practices toward IFRS practice. Secondly, without effective institutional support systems, corporate governance has made limited contribution to Chinese IFRS compliance