Did the Evolution of Accounting Standards in China Improve Earnings Quality?

• In Event: Concurrent Session 3.1: Auditing and Financial Reporting Quality

Abstract

Using a sample of 23,573 firm-year observations for the period 1993 to 2010, this study investigates whether the changes in accounting standards in China brought improvements in the quality of reported earnings. We identify three periods that best characterise significant shifts in accounting standard setting namely, the uniform period (1993-1997), the harmonisation period (1998-2006) and the convergence period (2007-2010). Then we examine whether earnings quality attributes such as, persistence, predictability, smoothness, discretionary accruals, and conditional conservatism differ between these periods. The results suggest that different earnings quality attributes capture different aspects of earnings which are not substitutable and that one aspect of earnings quality could be improved at the cost of sacrificing another.

Authors

• Fei Lu, The University of New South Wales

• Maria Cleofas Balatbat, The University of New South Wales

• Andrew Blair Jackson, The University of New South Wales