An Odd Overview of the Accounting Profession in China
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In China, the accounting profession emerged in the early 20th century, with the primary goal of serving the booming national industry and commerce.
The profession continued to play an integral role in the country’s economic recovery in the 1950s following the establishment of the People’s Republic of China (PRC). However, it’s development was thwarted for a period of time when China adopted a planned economic system.
Subsequently, the accountancy profession was revitalized in the 1980s following a series of China’s economic reforms that saw the construction of a socialist market economy. The profession continued to grow steadily, and in1988, the Chinese Institute of Certified Public Accountants (CICPA) was formed, which completely changed the accountancy landscape.
Today, China’s accounting profession has grown to a considerable scale and has amassed a global influence. Accountants play a critical role in China’s market economy, supervising the market, and upholding integrity with practices that are rooted in Confucian values.
The Chinese Institute of Certified Public Accountants (CICPA)The CICPA is a professional organization based in Beijing that is solely responsible for supervising, regulating, and coordinating the activities of the CPA profession.Founded in 1988, the Chinese Institute of Certified Public Accountants exercises professional management services and functions under the powers vested in The Law of the People’s Republic of China for CPAs set out by the Chinese Charter of Certified Public Accountants and assigned by the Ministry of Finance (MOF).CICPA is responsible for areas that include the following:
- Developing professional standards and rules for CPAs
- Organizing the National Uniform CPA examination
- Formulating professional regulatory rules and disciplinary actions for CPAs
- Giving publicity to the accountancy profession
- Examining and approving/rejecting applications for CICPA membership
What It Takes to Become a CPA in ChinaThere are a ton of different professional accounting certifications & licenses that financial professionals can take to enhance their careers in China, and CPA tops the list. A Chinese citizen can apply to take the CPA exam if he/she:
- Has a full civil capacity
- Holds a college degree or any recognized professional accounting title Candidates who have been disqualified from taking the exam on disciplinary grounds are not allowed to take the exam until five years after the date when the punishment decision was made.
The CPA examination is a dual-level structure, consisting of:
- Level 1: Professional stage
- Level 2: Comprehensive stage
There is a hierarchy in the levels, which means candidates cannot jump to the comprehensive level without going through the professional stage. Examinations are held once per year for both stages. The professional level covers six subjects, which are as follows:
- Financial and Cost Management
- Corporate Strategy & Risk Management
- Taxation Laws
- Economic Laws
The comprehensive stage covers one subject, namely professional competency. This level tests a candidate’s ability to apply their knowledge to practical situations. It’s aimed at assessing professional etiquette, ethics, interpersonal skills, and business management skills.
When applying for the examination, candidates can sign up for all the six subjects or select subjects at the professional level. The registration date is specified in the bulletins published annually by the Examination Committee of MOF.
Passing the CPA examination isn’t final. Candidates are required to complete at least two years of auditing experience to become members of CICPA and get a certificate. CPAs are also required to complete 120 hours of continuing professional education every 3 years.
Chinese Accounting Standards Vs. International Financial Reporting Standards (IFRS)Chinese Accounting Standards (CAS) slightly differs from the IFRS and knowing these differences is important to those looking to start a business in China.
Precisely, the Chinese Accounting Standards are around 90% similar to IFRS. Before China adopted the CAS, it relied upon a complicated fund accounting system and all industries and commerce were centrally controlled by the Chinese Communist Party (CCP).
But with international companies setting up Wholly Foreign Owned Enterprises (WFOEs) and increased Foreign Direct Investment in China, there was a need to adopt an accounting system that would be consistent with the IFRS. In 2013, the Chinese government released the new Accounting Standards for Small Business Enterprises (ASSBEs) that are 90% similar to IFRS.
While CAS has undergone various amendments to be as consistent with the IFRS as possible, some minor differences are worth noting. Below are the 4 notable differences between the CAS and IFRS.
- China’s financial Year must start on 1st January. With IFRS, the fiscal year doesn’t need to start on 1st January. It can start at any point as long as it spans 12 consecutive months.
- The CAS requires accounts to be classified by function, but with IFRS, accounts are classified by nature. Moreover, in China, companies must deal directly with the Ministry of Finance (MOF) when submitting accounts.
- The CAS requires the filing of returns to be done monthly. With the IFRS, returns can be filed on a quarterly or bi-monthly basis.
- The Chinese Accounting Standards only recognizes the historical-cost method when it comes to the valuation of fixed assets. However, with the IFRS, companies have the option to use either the historical cost method or re-evaluating the asset.
The Chinese Accounting Standards are also more detailed when handling some common items than IFRS. Take the case of mergers and acquisitions for example. In such cases, the CAS requires the companies to restate the figures. IFRS, on the other hand, has no such rules.
Challenges Facing the Accounting Profession in ChinaChina’s accounting profession has grown immensely over the last 30 years, but not without challenges. The last decade has seen a rash of accounting scandals some of which are attributed to the government’s attempts to adapt western accounting practices without adapting them first to the local, cultural business practices.
The challenges facing China’s accounting profession are mainly due to the incongruity between the new accounting regulations and the prevailing social-economic conditions in the country.
Another challenge facing the accounting profession in China is the overreliance of Confucianism, which appears to conflict with the needs of knowledge-based workers.
Social interactions based on Confucianism put the accountants in an ethical dilemma—where accountants prioritize the interest of their superiors over their clients, compromising their moral obligations to protect the public interest.
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