The Impact of Regulatory Enforcement and Audit Upon IFRS Compliance: Evidence from China

Posted: 27 Jul 2009

See all articles by Jean Jinghan Chen

Jean Jinghan Chen

University of Southampton

Haitao Zhang

University of Surrey-School of Management

Date Written: July 27, 2009


This study contributes to the accounting literature by providing empirical evidence from China that adopting IFRS does not necessarily lead to IFRS-type accounting practices. We examine the impact of regulatory enforcement, in particular, an important Chinese government compulsory compliance policy implemented in 2001, and audit upon the convergence of Chinese accounting practices. Using a sample of 103 Chinese B-share companies between 1999 and 2004, we reveal that the decline in earnings difference between firms’ financial statements under Chinese GAAP and IFRS is the result of the implementation of the 2001 policy and the audit committee which effectively control the firm’s application of standards rather than the differences between the standards. The effect of audit committee leads us further argue that the convergence of accounting practices may be affected by not only the lack of insufficient understanding of IFRS by local accounting professionals, but also the management opportunistic behaviour during the application of different standards. It implies that corporate governance may affect the convergence of accounting practice. However, we do not find evidence for international audit firms outperforming their Chinese local CPAs with regard to IFRS compliance. Therefore, the Chinese government should be cautious in promoting the participation of international audit firms in China for achieving IFRS compliance.

Keywords: accounting convergence, audit, China, compliance policy

JEL Classification: M41, G34

Suggested Citation

Chen, Jean and Zhang, Haitao, The Impact of Regulatory Enforcement and Audit Upon IFRS Compliance: Evidence from China (July 27, 2009). European Accounting Review, Forthcoming, Available at SSRN:

Jean Chen (Contact Author)

University of Southampton ( email )

Southampton, SO17 1BJ
Great Britain

Haitao Zhang

University of Surrey-School of Management ( email )

Guildford, Surrey GU2 5XH
United Kingdom

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