China accounting standards are the accounting rules used in mainland China. Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of industry. Foreign companies coming to China for the first time will be faced with very different attitudes towards accounting, and could potentially get caught out. While getting good local China accounting advice is almost certainly going to be necessary once you're on the ground, it can't hurt to be aware of a few home truths before getting started.
Framework of Chinese Accounting Standards
According to the Company Law and other relevant regulations, it is compulsory for all types of foreign-invested enterprises (FIEs) in China to comply with annual statutory auditing and other compliance processes.
Completing annual statutory audits and settling relevant tax liabilities are prerequisites for FIEs to distribute and repatriate their profits or dividends back to their home country. Failure to do so may result in extra expenses, penalties or even the revoking of business licenses.
Accounting and bookkeeping in China are governed by the Chinese Accounting Standards (CAS), also known as the Chinese Generally Accepted Accounting Principles. The CAS framework is based on two standards:
1. Accounting Standards for Business Enterprises (ASBEs);
2. Accounting Standards for Small Business Enterprises (ASSBEs).
Comparison between Chinese and International Accounting Standards
Anyone who has been to China will probably tell you that they do things very differently over here, and that includes Chinese accounting standards. The difference between the Chinese and international accounting standards are listed below:
1. Valuation methods for fixed assets
Under the IFRS, one may choose the valuation method for certain types of fixed assets. The company can value these assets either by using the historical-cost method, or by re-evaluating their assets. The CAS, however, only allows for fixed assets to be valued according to their historical cost.
2. Detailed rules in the CAS
For certain items that are common in China, the CAS’s rules are more detailed than the IFRS. An example would be the merging of two companies controlled by the same entity and having similar interests. CAS require that the comparative figures be restated, whereas there is no specific rule for this in IFRS.
3. Detailed rules in the IFRS
Conversely, the IFRS has rules for situations that are uncommon in China, such as for employee benefit plans. Apart from paying employees with company stock, the CAS does not address certain types of employee benefits that are offered by multinationals. Difficulties can arise when the parent company attempts to use the same benefits package with its Chinese subsidiary. In this case, the company may need to consult with the Ministry of Finance (MOF) as to how such transactions should be recorded.
4. Delayed implementation of the IFRS
When new updates to the IFRS are released, the MOF reviews them to determine if they are appropriate for China, and whether they will be incorporated into the CAS. As a result, the adoption of new IFRS standards is often delayed, or does not happen at all. This can lead to further complications if there are countries where corporations establish separate entities and adopt the new IFRS rules instead.
Equipped with competent and experienced financial practioners, Tannet is glad to provide you with tailor-made business solutions in the hope of helping you get a easy presence in China. Should you have any need, please find the following contact information to contact us. We look forward to hearing from you.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
Previous：Mobile Payment in China
Next：China’s Fapiao Invoice System