Chinese accounting standards are the accounting rules used in mainland China. As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.
One of the most challenging tasks for foreign investors in China is to fully understand the financial statements prepared for their entities. The Chinese Accounting Standards (CAS, i.e., the Chinese Generally Accepted Accounting Principles) framework is based on two standards, namely, Accounting Standards for Business Enterprises (ASBEs) and Accounting Standards for Small Business Enterprises (ASSBEs).
Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of industry. Therefore, unlike Western accounting standards, they were less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet, Chinese accounting standards did not include an accounting of the debts that a corporation holds, and were less suitable for management control than for accounting for tax purposes.
This system of accounting was widely considered to be unsuitable for managing corporations in a market economy. In 2006, the Chinese government introduced a revised accounting law. This was the fruit of considerable discussion and protracted debate, involving the Ministry of Finance, members of the International Accounting Standards Board (IASB) and representatives of some Chinese firms.
For certain items that are common in China, the CAS have more detailed rules than the International Financial Reporting Standards (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 the IFRS.
Conversely, the IFRS have rules for situations that are uncommon in China, such as more detailed employee benefit plans. Apart from paying employees with company stock, CAS do not address certain types of employee benefits commonly offered by multinationals. Difficulties can arise when the parent company attempts to translate such a package to its Chinese subsidiary. In this case, the company may need to consult with the MOF as to how this transactions should be recorded.
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