Sin opec, or China Petrochemical Corporation, is the major shareholder of four chemical subsidiaries including Julian Chemical Industrial Company, Yizlang Chemical Fibre Company, Ti ayin Bahai Chemical Company and Shanghai Petrochemical Company. Shanghai is one of the largest petrochemical companies in China, which produces four divisions of products containing 66 different types of products. The divisions are petroleum products, intermediate petrochemicals, synthetic resins and plastic products, synthetic fiber raw materials and synthetic fibers. Currently Shanghai has 66 sets of main production plants, which includes oil-refining, petrochemical processing, manufacturing of synthetic fibers and plastics. Shanghai gained two thirds of their plant and patented technology from Germany, Japan, Italy, and United States. In 1993, Shanghai Petrochemical Company (further referred to as Shanghai) was the first company "that organized under the PRC laws to make a global equity offering," (case number 9703 the Shanghai Petrochemical Company, LTD) and have shares listed on 3 stock exchanges, Shanghai Stock Exchange, Stock Exchange of Hong Kong Limited, and the New York Stock Exchange.
Shanghai's shares of stock consist of two classes, the A-Class, which is owned by the state or legal persons, and the H-Class that is traded on the stock exchange in Hong Kong. As of March 2003, Shanghai had a total of 299, 989 shareholders of which 3, 333 H-Class and 296, 656 A-Class providing direct financing of $520 million USD. In 1995, Shanghai's Board of Directors created an internal five-year plan in hopes of improving production processes and reduces waste. So they sought to create a joint venture with other companies.
Shanghai and US Phillips Petroleum International Company created an agreement forming Golden-Phillips Petrochemical Company Limited. Both companies will benefit from this venture. Phillips will gain access to the growing Chinese market and Shanghai will gain technology and capital from Phillips. Since Shanghai has become the first company to enter the stock markets, they now must report financial information according to Peoples Republic of China's (further referred to as PRC) accounting standards as well as the International Accounting standards (known as IAS).
There are two types of accounting systems, Common Law and Code Law. In Common Law, standards come from standards of practice. For example, in the US it's GAAP, in China it is PRC. Code Law the government writes and enforces the codes. The main strength for Common Law is that any economic losses can be seen quickly in financial statements. This way managers who see the decreases in future cash flow can take action to improve investments and make other necessary decisions to make the company more efficient.
Code Law give managers considerable amount of discretion in making accounting estimates. Example, profitable years reduce income by overstating expenditures. With the market economy growing in China, the Ministry of Finance in 1992 developed accounting and auditing standards for Business Enterprise also known as accounting standards, which serve as a guide for accounting information and formal standards. Many parts of the accounting standards are similar to the formal conceptual frameworks of the IAS. Foreign Companies have to prepare IAS statements and must have a Big Five Accounting firm audit. So comparisons of standards will be made between the PRC and the IAS.
The objective for accounting standards differs between China and U. S. In China, accounting standards are directed to meet the needs of the government, different industries and types of enterprise (government funds, major capital outlay). In the US, accounting standards are directed to meet the needs of investors and creditors (Private Sector for capital). In China there was 29 exposure drafts in 1996, with the first standard to be issued in 1997 being Disclosure of Related Party Relations and Transactions. When comparing accounting standards between the reporting of IAS and PRC some areas are different..