The rapid growth of the economy, the demand for foreign investment, the gradual maturity of China's securities market and the accession into the WTO have highlighted the need for a sound, reliable and transparent accounting system acceptable to foreign investors. The accounting regulations and systems designed to cater for tax regulations and state ownership under the communist system can no longer meet modern business management and funding requirements. To meet the demands of foreign investors and an increasing number of individual and institutional investors in the securities market, a series of regulations were issued. These include the Accounting Law which was issued in 1999, the Regulations on Financial Reporting of Enterprises issued in 2000 and finally the Accounting Systems for Business Enterprises (ASBE) issued in early 2001. The ASBE sets out the fundamental accounting framework and is more in line with IAS (International Accounting Standards).
In 2001 joint stock limited companies offering shares to the public were the first to be made mandatory to adopt the ASBE. The Accounting Regulations for Selected Joint Stock Limited Companies were then abolished.
In 2002 foreign investment enterprises were the second to adopt the ASBE. The Accounting Regulations for Foreign Investment Enterprises of the PRC were replaced. Although not yet mandatory, State-owned enterprises and other domestic enterprises are encouraged to adopt these new rules. In essence the ASBE will become the primary set of basic accounting regulations applicable to different types of enterprises.
Throughout the 1996 33 new exposure drafts were prepared on specific accounting issues. At the time of writing, 16 specific accounting standards have been issued, although not all of them are mandatory to foreign investment enterprises. Nevertheless the focus is clearly to steer the current systems and standards towards IAS.