China's Developing Accounting System China Term Paper

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For example, there are several suspicions regarding the foreign companies audited by Chinese authorized auditors, given their reduced number and lack of experience. Another example regards China Life Insurance, which was listed on the Hong Kong and New York stock exchanges, raising approximately $3.4 billion. The company's future evolution was not as successful, since the following year a routine audit on the company revealed that it had uncovered $652 million in financial irregularities. The result was the immediate fall of stock, attracting a series of lawsuits regarding financial fraud. The United States investors were obviously misled, they lost significant amounts of money, their efforts were in vain, and their image was severely shaken.

The consequences of this defective accounting system that is still applied in China can become quite severe for foreign companies that invest here. As mentioned above, a series of financial irregularities can emerge. Although these irregularities are conducted by the Chinese party, it will affect the foreign one also.

It is quite probable that negative attention regarding such issues will cause these foreign companies' stock to fall, affecting severely all investors. In addition to this kind of losses, foreign companies' financial and technical resources will not be rewarded at all. Also, such situations can attract lawsuits in which foreign companies will be involved, even if they are not guilty of any financial misconduct.

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Even more, these situations will attract a series of suspicions regarding companies' financial activity. These suspicions will create a negative image on the companies in case. Given the fact that for most companies a great part of their success relies on their image, the negative issues regarding their image could have repercussions that these companies will not be able to counteract.

There could be many cases regarding foreign investing companies that could renounce to investing in China's potential. This situation will be unfavorable for all the parties involved: the Chinese government, the local business partner, and local population affected by the situation.

International companies that have stronger financial power and market positioning could put pressure on the Chinese government in order to reach a conclusion regarding the implementation of an accounting system that really follows international standards. These companies could use their power and their influence in the region due to massive investments and determine China's officials to make some positive changes that could really reveal the country's political, social,….....

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"China's Developing Accounting System China" (2007, December 05) Retrieved May 3, 2024, from
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