Adaptability of Fair Value Accounting in China: Assessment of an Emerging Economy Converging with IFRS

Abstract

This paper examines fair value accounting (FVA) adoption and implementation, within the historical and social-economic context of an emerging economy, China. As FVA is a major component of International Financial Reporting Standards (IFRS), the findings provide insights on global challenges to international accounting convergence. The study is motivated by recent concerns about the adaptability to FVA in various countries, a question that has not been adequately examined in the literature. We analyse archival data on China's practices in adopting and implementing FVA to provide a critical perspective on whether the divergence in FVA between local standards and IFRS is justified and whether it may be bridged in the near future. The findings show (1) a roller-coaster trajectory going from complete ignorance, to an abortive introduction, to abrupt prohibition, and finally to aggressive re-introduction within a short period. China's practices in adopting and implementing FVA in IFRS appears to be driven by political and economic conditions, not by the readiness of the capital market or of other fundamental infrastructure. (2) China has extensively adopted FVA derived from IFRS but substantial divergence persists, posing a challenge to IASB's goal of uniform accounting. (3) China's implementation of FVA has improved only slightly since the first failed attempt at fair value reform, calling into question the effectiveness of future implementation efforts. Further analysis of the implementation challenges observed in China provides insights into the likelihood that uniform global accounting standards will come to be.

Keywords: Fair value, China, accounting standards, accounting convergence, emerging economy, IFRS

JEL Classification: M41, M44, M47, F36, N45