Earnings Measurement in Chinese Enterprises: A Quantitative Analysis of the Differential Effects of Chinese and International Accounting Standards

Concerns have been expressed by capital market participants that Chinese accounting standards may systematically result in consistently higher profits than those reported under International Accounting Standards (IASs). This paper empirically examines the gap between Chinese accounting standards and IASs in terms of profit differentiation. Using data from the annual reports of Chinese companies which have both domestic and foreign shareholders, profit figures determined by Chinese accounting standards and IASs are compared. The results suggest that there is a significant difference between Chinese accounting and international practices in terms of profit measurement. The study also suggests that the current requirement is justified for dual audit of the annual reports of Chinese companies which have domestic and foreign shareholders.