Comparison of Gaap and Prc Gaap

In any financial market, investors and other stakeholders will want to assess the financial position of the company before making decisions concerning that company. In recent years there has been an increased level of convergence in terms of international accounting. Despite this, there are differences in the way accounts prepared dependent upon the country which they take place. For example looking at two companies in the same manufacturing industry; Dell and Hartcourt Companies, Inc. the accounts are prepared under different regimes. Dell is a US computer distributer and hardware manufacturing company and the accounts are prepared according to the Generally Accepted Accounting Principles (GAAP). By comparison, Hartcourt Companies, Inc. is a Chinese distributor of computer hardware based in Shanghai and its accounts are prepared according to the accounting practices of the PRC (People’s Republic of China) GAAP. The International Accounting Standards Committee (IASC) that came into existence in 1973 was the result of accounting bodies from all major companies culminating together with the objective to formulate, publish accounting standards, and procedures relating to the presentation of financial statements. There are a number of differences between these approaches which can result in significant changes in the way accounts presented. It is important that an investor can appreciate these differences and understand how they will impact a company’s performance (Zhang, Lei and Shira, 2007)

China began to liberalize its economy in 1979 and since that time it has experienced remarkable growth. The new accounting system is based upon International Accounting Standards and the accounting system is experiencing changes for the better since it was implemented. The accounting standards of PRC GAAP are rooted in the Chinese Accounting Law (the highest authority in Chinese accounting). The law sets out general principles of accounting for all enterprises and also empowers the Ministry of Finance to administer accounting affairs and to establish uniform accounting regulations and systems. Under the mandate of Accounting Law the Minister of Finance has issued various accounting regulations that apply to different categories of enterprises. China is increasing its transparency in its financial reporting. In addition, it is undergoing a dual transition from a centrally planned economy to a socialist market economy, and from an emerging economy to an industrialized economy in which the business environment is in constant change (Zhang, Lei and Shira, 2007). As an example, local PRC GAAP accounting standards have recently been increasingly adjusted to international IFRS principles and efforts are under way to promote financial know-how.

U.S. GAAP is the body of authoritative literature that comprises accounting and reporting standards in the United States. The GAAP framework of accounting standards has been adopted by nearly all publicly traded U.S. companies and Dell is no exception. There are many differences and similarities between PRC GAAP (account reporting method utilized by Hartcourt Companies Inc) and the GAAP (account reporting method utilized by Dell). However, how that information is presented to the public may be very different simply due to the guidelines they follow in their reporting. In their general approach to accounting reporting the GAAP and the PRC GAAP are similar in that they use principle-based standards accompanied by detailed application guidance. With regards to property,