Academic journal article Australasian Accounting Business & Finance Journal

Land in China: Re-Considering Comparability in Financial Reporting

Academic journal article Australasian Accounting Business & Finance Journal

Land in China: Re-Considering Comparability in Financial Reporting

Article excerpt


This paper re-considers the notion of 'comparability' as it has been applied to the accounting standard harmonisation project and its implications for accounting practices that are emerging in China. Comparability is a concept that has been widely referred to within the accounting literature, but has remained largely unexplored. In order to encourage what Zeff (2007) described as "genuine comparability" we argue that the underlying economic substance of an event should be the focus of our accounting choices in order to enable appropriate comparisons. If we focus too heavily on regulatory standardisation that prescribes comparable techniques without considering the broader economic context in which these are applied, the accounting representations could mislead users. The techniques may distort representations of the underlying economic substance of business activities, which would hinder the level of a genuine comparability in global financial reporting. In order to explore this, given the unique legal status of land in China, we consider how it is classified and represented in Chinese financial reports. This example shows that there are still significant challenges that need to be overcome in order to implement IFRS in China and there are still substantial comparability problems for cross-border users.

JEL Classification: M400

Keywords: Comparability; IFRS; land ownership; China.


In 2007, Zeff (2007) raised the issue of global financial reporting comparability and convergence in his plenary address at the British Accounting Association's annual conference. In his address, he challenged the uncritical acceptance of 'comparability' as an unproblematic outcome of the IFRS project. By defining some factors that could impede or interfere with promoting genuine worldwide comparability he raised issues that researchers and practitioners have only considered in very limited ways. Given that Zeff (2007) challenged researchers to critically evaluate and explore the issue of comparability as it presents itself through efforts to harmonise accounting, this paper contributes to this discussion by offering an example of how different economic and legal contexts lead to different accounting representations.

Specifically we look at a particular institutional factor - the legal arrangement of land ownership to illustrate the problems associated with new Chinese Accounting Standards (CAS) after they are converged with the IFRS. The ownership of land has not only been the subject of fierce ideological controversy, but also the chief source of power in human history (Ellickson 1993). Despite the continuous opening and privatising of its domestic economy, China still maintains a very strict collective ownership of land. The reality is very different to mainstream Anglo-American legal frameworks because these are organised to support de-centralised land ownership. By demonstrating the impacts of the different land ownership in China on accounting and reporting practices, this paper illustrates some of the challenges and obstacles that confront IFRS convergence if a genuine comparability is to be achieved.

The Problem of Comparability

Achieving comparability has been a major consideration underlying the project of IFRS convergence for cross-border financial reporting (FASB 2002). In the accounting literature the issue of comparability has, for the most part, been presented as attainable through the global harmonisation or convergence of national accounting standards through the wide adoption of IFRS. As a result, the concept of comparability itself has been subject to little critique and limited theoretical explanations. As Zeff (2007; p. 290) indicated:

[w]e have not really had much literature that helps us understand what is meant by comparability - when we have it, and when we do not.

A view of comparability that is widely cited is from American Institute of Certified Public Accountants (AICPA)'s definition - "Comparability means to have like things reported alike, and unlike things reported differently" (AICPA 1971; p. …

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