AAMJAF, Vol. 5, No. 2, 55–76, 2009 55 FINANCIAL REPORTING GAPS AND VALUE RELEVANCE: CHINESE ACCOUNTING STANDARDS AND INTERNATIONAL ACCOUNTING STANDARDS POST-2001 Dani Foo 1* , Bin Liu 2 and Howard Davey 2 1 Department of Finance, 2 Department of Accounting, Waikato Management School, Waikato University, Private Bag 3105, Hamilton 3240, New Zealand *Corresponding author: dfoo@waikato.ac.nz ABSTRACT To gauge the effect of the 2001 official “harmonisation” of the Chinese Accounting Standards (CAS) and International Accounting Standards (IAS) regimes, we examine all companies that simultaneously issued both A and B shares in both the SHSE and SZSE using the Weetman, Jones and Gray (1998) Index of Comparability, testing for differences between companies’ reported earnings and equities. Ohlson’s Value Relevance Model (Ohlson, 1995) is also used, associating stock prices with both earnings and book values of these firms to gauge their relative value relevance. Our findings suggest that reported earnings and equities based on CAS are not significantly different from those based on IAS. We infer from our results that the CAS regime has converged with the IAS more substantially than was previously believed and that most existing literature that involves studying the practical differences of CAS from IAS may have been superseded by these findings. The CAS authorities can be cautiously optimistic about the degree of convergence with IAS. Keywords: Chinese Accounting Standards, convergence, harmonisation, value relevance, Comparability Index. INTRODUCTION The Shanghai Stock Exchange (SHSE) started trading in December 1990, followed by the inauguration of the Shenzhen Stock Exchange (SZSE) in June 1991 in southern China. These Chinese stock markets were multi-tiered, where shares of listed companies were generally divided into different tranches depending on whether the target audience is domestic or foreign. This study was done to address the difficulties of transforming a centrally planned economy to a market-oriented environment. Initially, listed Chinese companies in SHSE and SZSE were only authorised to issue shares in Renminbi Yan to domestic ASIAN ACADEMY of MANAGEMENT JOURNAL of ACCOUNTING and FINANCE