Emerging economies should have more say in setting global accounting standards, Chinese finance official
BEIJING, July 1 (Xinhua) - China called for providing more say to the emerging market and developing nations, on Thursday, in the formulation of the International Accounting Standards (IAS).
China will steadily push forward the reforms in its own accounting standards, making it move closer to IAS standards. It also hopes the International Accounting Standards Broad (IASB) will take into consideration more opinions from the emerging economies to enhance the authority of the IAS, Wang Jun, Vice minister of the Ministry of Finance (MOF), said at a two-day meeting in Beijing.
IASB Chairman David Tweedie welcomed China' s efforts in reforming its accounting standards and pledged to improve the quality of the international financial report.
The meeting was attended by about 50 officials and personnel from the MOF, the IASB and the Hong Kong Society of Accounts, and was regarded as an implementation of creating a single set of high quality, global accounting standards as called for by G20 financial leaders in September 2009.
This raises an interesting consideration for the not-for-profit sector: not only does the ‘public accountability’ definition have a different interpretation than that we are perhaps used to in the sector, but the definition may result in a greater degree of incomparability.
Go to FitchRatings and download their deep dive into global accounting convergence. You'll have to register (free) and search for Accounting and Financial Reporting: 2010 Global Outlook Bumps on The Road to Convergence.It's worth the trouble. This is a good, concise status report.
The key points on convergence:
Convergence probably won't meet the 2011 deadline.
FASB and IASB are far from agreement on financial instruments.
The SEC will move to adopt IFRS, but not on the previous roadmap timetable.
On other fronts:
Off balance sheet items come back onto the balance sheet under GAAP.
“Special purpose entities" cease to exist.
Pension assets and liability changes may have to run through the income statement.
Expect more disclosure in general, especially on GAAP statements.
Don't believe everything you read in the South China Morning Post. A Big 4 auditor sent an article to us and said it's causing problems because the SCMP got the facts backward. China is making dual-listed insurers use China standards. We can't link to it because the SCMP is behind a paywall, but here's the dead-wrong headline and lede:
Dual-listed insurers to adopt HK accounting
New rule will eliminate differences in results
Daniel Ren in Shanghai
Dec 31, 2009
The mainland insurance regulator will require insurers trading on both the Hong Kong and
Shanghai stock exchanges to report their earnings this year using a single set of accounting standards. Under the rule announced yesterday, mainland insurers including China Life (SEHK: 2628, announcements, news) Insurance, Ping An Insurance (Group) (SEHK: 2318) and China Pacific Insurance Group will report using Hong Kong accounting standards. The move is designed to bring the mainland's accounting standards in line with international practice.
In fact, China Accounting Standards (CAS) and IFRS are almost completely converged now, but a few differences remain. One of them is the treatment of policy acquisition costs by insurers. Hong Kong standards allow them to be capitalized and amortized. CAS require them to be expensed when
incurred.
Chinese insurance companies dual-listed in China and in Hong Kong have been reporting one set of numbers in the statements for investors in China listed A shares and another in their statements for Hong Kong listed H shares. They capitalized the costs for A share reporting and expensed them for A share reporting.
As a result, H share statements show more capital than A share statements -- never mind the income statement impact. Chinese authorities are disallowing that as of the 2009 reporting year.
The capital impact will be huge for some insurers, with billions of dollars disappearing from the H share balance sheets. Chinese regulators required the insurers to disclose the potential impact in their 2008 annual reports, so this should't come as a complete surprise. The easiest way to get the annual reports is to use the search feature at HKEXNews. Sometimes the company websites are slow. One thing the SCMP got right -- the names of the companies and their codes.
Gregory J. Millman is a contributing editor to Financial Executive Magazine. He has also written for Forbes, Barrons, the Wall Street Journal, The Washington Post, and numerous other periodicals He is the author of books of financial journalism including The Floating Battlefield: Corporate Strategies in the Currency Wars; The Vandals’ Crown: How Rebel Currency Traders Overthrew the World’s Central Banks, and The Day Traders: the Untold Story of the Extreme Investors and How They Changed Wall Street Forever. His most recent book is Homeschooling: A Family’s Journey. Prior to making a career shift to journalism, he worked in banking, consulting, and project finance in China.
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Anna Millman is currently a senior in economics at Brown University.
