Fair Value Accounting Reforms in China: Towards an Accounting Movement Theory

Abstract

How do accounting principles become generally accepted? This study develops an analytical framework for the process of general acceptance based on research into social movements. Social movement theory (SMT) has its roots in management and sociology research. We draw on SMT to develop a framework adapted to the highly institutionalized field of accounting. Looking at the stop-start process that began in 1997 and eventually led to the acceptance of fair value accounting (FVA) in China, we show that SMT-based factors can explain the success and speed with which a new accounting principle like FVA is introduced into practice. The initial failure of Chinese FVA proponents to introduce it in 2000, followed by the success of their efforts a few years later, offers us a unique opportunity to come to grips with the factors that lead to general acceptance. This study provides a theory-based analysis of processes that in some respects are unique to the Chinese setting, offering us a glimpse of accounting in an emerging economy. However, because the field of Chinese financial accounting shares many institutional features with the rest of the world, the theoretical model we develop can also provide insights into accounting standards setting in other jurisdictions.

Keywords: Social movement theory, accounting movement theory, fair value accounting, accounting standard setting, China, International Financial Reporting Standards, IFRS, generally accepted accounting principles

JEL Classification: M41