Guanxi is the key to getting anything done in China—the single most important factor for success in the country. The Chinese widely believe that it trumps intelligence, knowledge, talent, ambition…and even wealth. For better or worse, guanxi is the oil that keeps wheels of commerce, politics and society in general running in China.
The completion of annual statutory audits and settlement of all 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 Chinese accounting system in extra expenses, penalties, or even revocation of their business license.
The CAS framework is based on two standards: It is widely viewed by the international community that ASBEs are now substantially converged with IFRS, with only some minor discrepancies in wording. The ASSBEs use the ASBEs as a reference, but are more similar to tax laws in terms of their tax calculation methods, which simplify the process of making adjustments between accounting standards and tax rules.
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 using the historical cost principle, or by applying a revaluation of assets. CAS, however, only allow fixed assets to be valued according to their historical cost.
An example would be the merging of two companies controlled by the same entity and having similar interests. 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 transaction should be recorded. As a result, the adoption of new IFRS standards is often delayed, or does not happen at all.
This can lead to further divergence if the countries where other entities of the corporate group are established adopt the new IFRS rules earlier. Converting Chinese financial reports into a target accounting system can be fairly easy for large multinationals, as these companies have sufficient financial support for purchasing specialized software to complete the process.
However, small and medium-sized companies often cannot afford the software needed for such conversions, and instead have to study the divergence of accounting rules and do the conversion manually. As all FIEs are required to prepare financial reports by the end of the fiscal year, it is important for corporate accounting teams to fully understand Chinese accounting practice and ensure correct annual audit processes.
This article was originally published on April 25,and has been updated to include the latest regulatory changes. For editorial matters please contact us hereand for a complimentary subscription to our products, please click here. For assistance with China business issues or investments into China, please contact us at china dezshira.
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Deloitte Touche Tohmatsu, the professional services firm, had been providing consultancy services to the Chinese Ministry of Finance since , giving advice on how best to implement a new accounting methodology, and how it would best suit the Chinese accounting system.
Patina’s Finance & Accounting practice helps companies deal with a wide variety of issues and situations at a strategic and tactical, "hands-on" level. This helps explain why the Chinese tend to flaunt the rules.
I’ve used the example of Chinese men smoking in No Smoking areas many times before because it’s the most visible (and annoying) to many Western tourists visiting China. Converting Chinese financial reports into a target accounting system can be fairly easy for large multinationals, as these companies have sufficient financial support for purchasing specialized software to complete the process.
Chinese companies whose securities trade on the Stock Exchange of Hong Kong may choose among IFRS, Hong Kong Financial Reporting Standards (HKFRS), and Chinese Accounting Standards (ASBE) for purposes of financial reporting to Hong Kong investors.