Accounting reforms in China: A transition from state plan and control-oriented system to capital market-oriented system

As there is growing interest in Chinese financial reporting issues it is important to under-stand the nature and feature of the current accounting system which was brought by 1993 accounting reforms. 1993 can be considered as the turning point for accounting development in China. This paper documents the changes from the 1993 accounting reforms in various financial reporting areas, e.g., the development of a conceptual framework, the im-provements in accounting measurement and disclosure practices, and the establishment of regulatory and institutional framework for financial reporting. The analysis indicates that the pre-reform state control and tax driven financial reporting system has been gradually transformed into a capital market oriented financial reporting system. The relationship be-tween these accounting changes and the driving forces underlying these changes are estab-lished and discussed. The three driving forces are the economic reform of state-owned enterprises, the development of capital market and the increase in foreign direct invest-ment. In other words, the new 1993 financial reporting and accounting system is the result of a combination of foreign influences and domestic socio-economic reforms. The paper also attempts to identify emerging issues and problems facing Chinese accounting regula-tors and profession.