USEFULNESS OF ACCOUNTING ESTIMATES: A TALE OF TWO COUNTRIES (CHINA AND INDIA)

Usefulness of Accounting Estimates: A Tale of Two Countries (China and India)

A Study on China and India

Florencia Borland

University of Belize
USEFULNESS OF ACCOUNTING ESTIMATES: A TALE OF TWO COUNTRIES (CHINA AND INDIA)

In China and India Li Li Eng and Thanyaluk Vichitsarawong did an exploratory study in 2017 of

the usefulness of accounting estimates in companies of both countries. It was based on how the quality

is measured as to how well the accounting estimates can predict future earnings and cash flow. Using

models of accounting to prove the theory of predicting future cash earnings and how they both comply

with the IFRS and the Accounting Standards.

Li Li Eng and Thanyaluk Vichitsarawong examine the quality of earnings and cashflow based on

reports by Chinese and Indian firms during the period 2003 through 2013. This research excluded the

crisis years form 2007-2009 according to the US National Bureau of Economic Research (NBER) since this

was when the US recession began in December 2007 and ended in June 2009 and the financial crisis

appears to have ended about that same time. Based on this information the research was done on the

pre- period that is 2003 to 2006 and post period from 2010 to 2013. Using the four accounting models it

predicts the out of pocket samples earnings and cash flow during the pre- periods and post periods and

has proven that the post period works better in India. In China none of the periods show positive

outcomes.

In April 2010 the Securities Exchange Board of India has provided an option to listed entities

having subsidiaries to submit their consolidated financial result either in accordance with the accounting

Standards specified in Section 211(3C) of the Companies Act 1956, or in accordance with IFRS. Whereas

China has not adopted IFRS. China’s new accounting standards of 2006 have become substantively

convergent with IFRS (Y. Ding & Su, 2008). Firms that issue A-shares are require complying with Chinese

domestic accounting standards that have gone through changes to converge with IFRS. Firms that issue

B-shares are require issuing two sets of annual reports, one with Chinese Standards and the other with

IFRS standards.
USEFULNESS OF ACCOUNTING ESTIMATES: A TALE OF TWO COUNTRIES (CHINA AND INDIA)

Li Li Eng and Thanyaluk uses quite some research and accounting models and formulas that has

proven their theory in regards of the accounting estimates however they did not work hard to publish

their work. They use a set period from 2003-2013 and yet omitted years 2007 to 2009 when the US was

in recession, but that’s the US recession what does it has to do with India or China.

Li Li Eng and Thanyaluk research was brilliant they use four different types of formulas that

enhance their research, but more clear explanation would have been given so as to clearly understand

the steps.

In conclusion the research of India and China is been very helpful and most of it was straight to

the point.
USEFULNESS OF ACCOUNTING ESTIMATES: A TALE OF TWO COUNTRIES (CHINA AND INDIA)