China Is Known as an Awakening Giant Country

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Moreover, according to Xiao et al. (2000), China's legal system is different from IFRS's background. Western countries follow the common law system and depend mostly on accountants' professional judgment. Meanwhile, professional judgment is not common in China as they are accustomed to following the senior and authority and the accounting standard rules are preferred. Accountants in China are also believed by Zeng (2010) to not train enough in making professional judgment, which is resulted from the educational system. Chinese students commonly learn by heart instead of thinking critically and they must keep silent, not make questions or discontinue the class because it is thought to be rude. Thus, Zhang (2010) states that the government sets up and controls accounting standards and systems in China, making accountants have less chance to make professional judgment. Furthermore, as China follows the code law system, the business accounting standards are forced by law and Chinese government wants to develop uniform rules for all business in its legal system (Hwang and Staley, 2005). On the other hand, according to Doupnik and Riccio (2006), China desires to establish some accounting rules to meet its taxation system, govern the accounting profession and fit its national policy and planned economy instead of giving financial information needed by investors in a market-based economy. Many Chinese businesses cut down their profit in their financial report for tax decrease while the profits are made to maximum for investor attraction in western enterprises.

Another factor which impacts China converging with IFRS is culture. In order to understand deeply how Chinese culture makes significant impacts on its accounting system and implementation of IFRS, the Hofstede model with four different cultural dimensions will be involved (Hofstede, 1980). Specifically, “power distance” refers to the degree to which the less powerful members of institutions as well as organizations such as family will approve and hope that the power will be distributed unequally (Hofstede, 1984, pp. 7). With regarding to individualism versus collectivism, this dimension includes the extent to which individuals will be integrated into groups (pp. 7). Actually, in individualism society, the emphasis is on individual rights and achievements whereas in collectivism one, individuals will be major part of cohesive and long-lasting organizations or groups. As for uncertainty avoidance, the dimension involves in the tolerance of societies towards ambiguity along with uncertainty (pp. 8). It illustrates the degree to which people within a specific society make an effort to handle with anxiety through the minimum of uncertainty. In terms of masculinity versus femininity, this dimension refers to the distribution of emotional roles amongst genders (Hofstede, 1984, pp. 8). Finally, long-run orientation versus short-run orientation known earlier as Confucian dynamism is reflected as the time horizon of the society. Applying into Chinese culture, Hofstede (1980) refers that its major cultural component underlies in Confucianism which make the encouragement towards the people in order to create a society with its own order, harmony and cooperation. Confucianism will put Collectivism (the nation) above Individualism (People), and people should unambiguously serve to defend the nation and sacrifice if needed. Consequently, that results in a phenomenon in which the state in China has common trend to take its initiative authority in the public affairs. In tradition, its business culture is addressed with high-context communications, paternalism and personalism whereas Western one is shaped with formal communications, individualism and im-personalism (Hofstede and Bond, 1988, pp. 19).

In terms of the application of Chinese culture into its accounting system with regarding to Hofstede framework, Wright et al. (2002) refer that the development of Chinese accounting is greatly influenced by its collectivism and statutory control culture. Traditionally, enterprises are controlled in China by centralized planned system. This power is unlikely to turn over to a professional body. In addition, people in China still prefer the regulations and established norms and authorities to principle and guideline of IFRs/IASs. Chen et al. (2001) stress that in order to catch up to international accounting standards and principles, China needs time and more training to enhance its professional judgment. Furthermore, China’s accounting system is characterized to have strong uncertainty avoidance, conservatism and high secrecy (Watkins, 2000). In China, government usually plans everything ahead so nothing unexpected happens under the complex circumstances. With a great power gap, these factors will cause many problems. Consequently, the control system would become statuary, the accounting professional would be weak, and equity market would become weak and imperfect with accounting tradition and cultural factors would be inertially affected (Doupnik and Riccio, 2006). Moreover, due to the conservatism and secrecy, many businesses in China would not want to publish much information to keep their collective profit. Moreover, a greater power gap and uniformity would prevent the disclosure, professional judgement and cause low transparency. When there are conflicts, the subordinates with less power tend to compromise and accommodate their superiors’ wishes (Wu and Kao, 2006).

Finally, interpersonal relationships in China are greatly influenced by the Confucianism culture. Every business and social activities are impacted by “Guanxi” in China. Guanxi is believed by Su and Littlefield (2001) to be more important than formal legal contracts. With this, the demand for high quality public financial reporting and disclosure is lowered, since some companies may have a close relationship with the bank, they tend to reduce the importance of individual shareholders, have a greater liking for internal funds and bank loans over public equity and debt (Doupnik and Riccio, 2006). If China acts in accordance with the common principles of IASB, it would result in several issues of enforcement, widespread bureaucratic corruption, confusion and a great effect on the legal system in China. Guanxi-based business variables, however, are substantially and positively related to accounting performance (Luo and Chen, 1997). Regarding to the whole system in China, guanxi is positive and brings about more benefits rather than problems, making it simpler to do business and help to reduce cost and expenses on bad debts.

In forthcoming years, there has a significant turning point for the country because of its launching of “five-year plan” including some reform policies for China (Xiao et al., 2004, pp. 71). The most notable point underlies that the