On theoretical engorgement and the myth of fair value accounting in China

Abstract

Purpose The purpose of this paper is to provide “Comments” on two previous papers in this journal about fair value in Chinese accounting. It extends those papers by considering developments since 2006. Design/methodology/approach The paper analyses the contents of Chinese Accounting Standards, dividing the references to fair value into several different categories. This analysis is compared to the findings of the two previous papers. This paper then re-assesses the evidence about the alleged pressures from international institutions on Chinese accounting. Findings The two previous papers greatly overstate the importance of fair value in Chinese accounting, partly through misinterpreting Chinese standards and partly because of a lack of caveat that the instructions about fair value often relate to special circumstances or unusual companies. The theorising about Chinese enthusiasm for fair value is misguided: the present author suggests that China became keen to adopt international standards despite their use of fair value not because of it, and that China removed much of the fair value when it adapted international standards. The extension of the analysis beyond 2006 provides a fuller coverage but does not alter the conclusions. Research limitations/implications The earlier of the two papers examined has been extensively cited. Researchers need to be warned that the technical content and the conclusions of both papers are questionable. Authors should define terms clearly and should provide sufficient reference detail to enable readers to check findings. Practical implications Multinational companies, auditors and financial analysts should not be misled into thinking that Chinese accounting makes extensive use of fair value accounting. Originality/value This paper critically re-assesses two previous papers, starting with detailed technical data and moving through to the influence of international institutions. This paper also newly extends the analysis of Chinese standards beyond 2006.