Discussion opinion

Clearly stated in the case study, there are many differences between Chinese GAAP and IFRS guidelines. The differences between them include the following:

• Depreciation of oil and gas properties
• Disposal of oil and gas properties
• Capitalization of general borrowing costs
• Acquisition method
• Gains from issuance of shares by a subsidiary
• Gain from debt restructuring
• Revaluation of land use rights
• Unrecognized losses of subsidiaries
• Pre-operating expenditures
• Impairment losses on long-lived assets
• Government grants

The differences between IFRS and US GAAP are as follows:

• Foreign Exchange gains and losses
• Capitalization of property, plant, and equipment
• Revaluation of property, plant, and equipment
• Exchange of assets
• Impairment of long-lived assets
• Capitalized interest on investment in associates
• Goodwill amortization
• Companies included in consolidation
• Related party transactions

These differences give rise to a major increase in net profit under IFRS as well as a major increase in shareholder equity. In our previous discussion, we talked about how the convergence of accounting guidelines might affect certain cultures. I had pointed out that Asian countries tend to have a more conservative approach to many things and as anyone can see, the PRC GAAP guidelines are more conservative than the IFRS guidelines. What I believe to be the key difference between PRC GAAP and IFRS is the depreciation method of oil and gas properties. This lead to the largest adjustment as PRC GAAP is more conservative using the straight line method as opposed to the unit of production method required under IFRS. The key difference between IFRS and US GAAP would also be how property plant and equipment are valued and depreciated. Again, these adjustments caused the largest differences between the different accounting guidelines.

As a company listed on foreign stock indices, China Petroleum and Chemical Corporation needs to have clarity for its current and potential investors. Readers of the financial statements in the United Kingdom should be wary of the information provided in these 2003 statements because the United Kingdom did not participate in IFRS until 2005. Readers in the United States would be able to find this information useful because the financials provide a reconciliation from PRC GAAP to IFRS and IFRS to US GAAP.

When a company chooses to list itself on multiple stock indices, they are looking to attract potential investors. By doing so, these companies need to take the time and spend the money to be in compliance with the accounting guidelines put in place for the country they are listed in. Therefore, I would recommend that companies adopt the multiple standards approach so that they can be as transparent as possible.

http://www.iasplus.com/en-gb/standards/ifrs-in-the-uk-1