New IFRS e-Learning modules in Chinese

Eight additional IFRS e-Learning modules have now been translated into Chinese and posted on Deloitte's CAS Plus website – bringing the total available modules to 27:

• IAS 12 Income Taxes
• IAS 18 Revenue
• IAS 21 The Effects of Changes in Foreign Exchange Rates
• IAS 36 Impairment of Assets
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets
• IAS 40 Investment Property
• IFRS 2 Share-based Payment
• IFRIC 12 Service Concession Arrangements

Two Deloitte IFRS newsletters in Chinese

Deloitte China has published the Chinese translations of the following IAS Plus Update IFRS newsletters:

• IFRIC 19 - Accounting for Debt for Equity Swaps
  • Chinese Translation (PDF 157k)
  • Here is the English Version (PDF 79k)
• Amendment to IFRIC 14 - Prepayments of a Minimum Funding Requirement
  • Chinese Translation (PDF 154k)
  • Here is the English Version (PDF 60k)

Proposed Roadmap for IFRS convergence in China

The Ministry of Finance (MOF) of the People's Republic of China has invited comment on an exposure draft of a Roadmap for Continuing and Full Convergence of the Chinese Accounting Standards for Business Enterprises (ASBE) with the International Financial Reporting Standards (IFRSs). Comments are due by 30 November 2009. The current ASBE were adopted by the MOF in February 2006. The principles in the ASBE are substantially in line with IFRSs, with a few exceptions. The Proposed Roadmap is Available in Chinese on the MOF's website. Because the IASB plans to complete a number of major projects by 2011, the Roadmap targets 2011 as the year for completion of the convergence programme of the ASBE and IFRSs. As part of that programme, during 2010 the ASBE standards will be revised; the existing Implementation Guidance will be incorporated into them; and the existing Explanatory Guidance will be renamed Implementation Guidance with enhanced content and illustrative examples. Once completed, all large and medium-sized enterprises will be required to use the revised standards as of 2012.

New IFRS e-Learning modules in Chinese

The following additional IFRS e-Learning modules have now been translated into Chinese and posted on Deloitte's CAS Plus website:

• IAS 1 Presentation of Financial Statements (revised 2007)
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• IAS 27 Consolidated and Separate Financial Statements
• IAS 28 Investments in Associates
• IAS 31 Interests In Joint Ventures
• IAS 32/39 Financial Instruments - Part 1
• IAS 32/39 Financial Instruments - Part 3

Three Deloitte IFRS newsletters in Chinese

Deloitte China has published the Chinese translations of three IAS Plus Update IFRS newsletters:

• IAS 24 Related Party Disclosures
  • Chinese Translation (PDF 211k).
  • Here is the English Version (PDF 68k)
• IFRS 9 Financial Instruments
  • Chinese Translation (PDF 291k).
  • Here is the English Version (PDF 226k)
• Exposure Draft ED/2009/12 Financial Instruments: Amortised Cost and Impairment
  • Chinese Translation (PDF 238k).
  • Here is the English Version (PDF 90k)

Chinese translation of two IFRS newsletters

Deloitte China has published the Chinese translations of two IAS Plus Update newsletters:

• Additional Exemptions for First-time Adopters
  • Chinese Translation (PDF 203k).
  • Here is the English Version (PDF 78k)
• IASB Releases Omnibus Exposure Draft of Annual Improvements
  • Chinese Translation (PDF 249k).
  • Here is the English Version (PDF 71k)

Chinese translation of newsletter on rate-regulated activities

Deloitte China has published the Chinese translation of the IAS Plus Update newsletter IASB Proposes Guidance on Rate-regulated Activities:

• Chinese Translation (PDF 162k).
• Here is the English Version (PDF 77k)

Chinese translation of newsletter on financial instruments

Deloitte China has published the Chinese translation of the IAS Plus Update newsletter Exposure Draft Proposes New Classification and Measurement guidance for Financial Instruments:

• Chinese Translation (PDF 219k).
• Here is the English Version (PDF 383k)

Chinese translation of newsletter on IFRS for SMEs

Deloitte China has published the Chinese translation of the IAS Plus Update newsletter Simplified financial reporting – IASB provides relief for SMEs:

• Chinese Translation (PDF 220k).
• Here is the English Version (PDF 86k)

MOF issues official Interpretation of CASs #3

The PRC Ministry of Finance has issued its third official interpretation of the new Chinese Accounting Standards. It deals with the following issues:

1. Accounting for dividend from equity investments accounted for using the cost method
2. Fair value measurement of restricted shares of listed companies
3. Revised accounting treatment of 'safety expense reserve'
4. Accounting for government compensation for relocation of enterprises for public interest
5. Application of vesting and non-vesting condition in recognition and measurement of share-based payment
6. Guidance on how to determine whether an agreement for the construction of real estate is within the scope of CAS15 Construction Contracts or CAS14 Revenue
7. Presentation of other comprehensive income and total comprehensive income
8. Revised reporting requirements of segment information for operating segments

Chinese translation of newsletter on proposed amendments to IFRIC 14

Deloitte China has published the Chinese translation of the IAS Plus Update newsletter IASB Proposes Amendments to IFRIC 14:

• Chinese Translation (PDF 155k).
• Here is the English Version (PDF 73k)

Chinese translation of newsletter on fair value measurement ED

Deloitte China has published the Chinese translation of the IAS Plus Update newsletter Exposure Draft Proposes Expanded Guidance on Fair Value Measurement:

• Chinese Translation (PDF 175k).
• Here is the English Version (PDF 71k)

Chinese translation of newsletter on income tax ED

Deloitte China has published the Chinese translation of the IAS Plus Update newsletter Changes Proposed for Income Tax Accounting:

• Chinese Translation (PDF 219k).
• Here is the English Version (PDF 103k)

Chinese translation of newsletter on Improvements

Deloitte China has published the Chinese translation of the following IAS Plus Update newsletter:

• Chinese Translation of IAS Plus Update Newsletter – Improvements to IFRSs 2009 (PDF 156k).
• Here is the English Version (PDF 108k)

Chinese translation of two IAS Plus Update newsletters

Deloitte China has published the Chinese translations of the following IAS Plus Update newsletters:

• Chinese Translation of IAS Plus Update Newsletter – Exposure Draft on Derecognition (PDF 161k).
• Here is the English Version (PDF 148k)

• Chinese Translation of IAS Plus Update Newsletter – Discussion Paper on Lease Accounting (PDF 164k).
• Here is the English Version (PDF 129k)

Chinese translation of Heads Up newsletter on leases

Deloitte China has published the Chinese translation of the following Heads Up newsletter:

• Chinese Translation of Heads Up: FASB and IASB Issue Preliminary Views on Lease Accounting (PDF 351k).
• Here is the English Version (PDF 86k)

Chinese translation of newsletter on G20 and IFRSs

Deloitte China has published the Chinese translation of the following IAS Plus Update newsletter:

• Chinese Translation of IAS Plus Update Newsletter – G20: Implications for IFRSs (PDF 152k).
• Here is the English Version (PDF 100k)

IFRS newsletters available in Chinese

Deloitte China has published Chinese translations of two IAS Plus Update newsletters on recent amendments to IFRSs:

• Chinese Translation of IFRS 7 Amended to Improve Disclosures about Financial Instruments (PDF 186k)
• Here is the English Version (PDF 115k)
  and
• Chinese Translation of Clarification Regarding Assessment of Embedded Derivatives (IFRIC 9 and IAS 39) (PDF 124k)
• Here is the English Version (PDF 96k)

Update on the reforms of the Chinese CPA Examination System

The Chinese CPA Examination System is undergoing reform. The finalised examination reform scheme was issued in January 2009, and the new system will run in parallel with the current system for 2009 to ensure a smooth transition. Highlights of the reforms are as follows:

Exam structure

The CPA examinations will be transformed into a dual-level structure:

• Level 1: Professional Stage
• Level 2: Comprehensive Stage

There is a hierarchy in the two levels of the examinations, which means that an examinee can take the examinations of the comprehensive stage only after passing those of the professional stage

Examinations will be held once a year for both levels

Exam subjects

The Professional Stage will cover six subjects, that is, one new subject will be added to the current five subjects as follows:

• Accounting
• Auditing
• Financial and Cost Management
• Economic Law
• Taxation Law
• Corporate Strategies and Risk Management (the newly added subject)

Compared with the current system, the new examination is intended to give more focus on the basic theories and their application. It is the intention of the CICPA to reduce the complexity of the six subjects but broaden their scope.

The new subject, Corporate Strategies and Risk Management, combines some of the content from Financial and Cost Management under the current system supplemented with additional topics. It is aimed at assessing the required relevant knowledge about organizations and businesses as set in the Guidance on Competence of Chinese CPAs.

The Comprehensive Stage examination will require candidates to apply their knowledge to practical situations. It is aimed at assessing: professional and legal knowledge, professional values, ethics and attitudes, intellectual ability, inter-personal communication skills and skills in managing an organization/business.

Validity Period for the examination results

The examination results of each of the subjects in the Professional Stage will be valid for five years. After successfully passing all the required subjects of the Professional Stage examinations, candidates will receive a 'Certificate for Passing the Professional Stage Examination'.

The Comprehensive Stage examination has to be completed within five years after obtaining the "Certificate for Passing the Professional Stage Examination'.

After successfully passing the Comprehensive Stage examination, candidates will obtain a 'Certificate for Passing All Subjects'.

Transition plan for the Chinese CPA examination system reforms

In 2009, first-time enrolled candidates and candidates who have enrolled in previous years but have yet to pass any subject must participate in the new system.

For those who have passed one or more of the subjects under the current system, they have a choice to either (1) take the remaining examinations under the current or (2) enroll in the new system.

At the end of the 2009 examinations, those who have passed all five subjects under the current system shall be granted the 'Certificate for Passing All Subjects'.

The results obtained from 2006 to 2008 and any passes in 2009 for those who elect to take the current system will be credited towards the corresponding subjects under the new system. Please note that the result of the Financial Management and Cost Management examination shall be credited towards both the Corporate Strategies and Risk Management and Financial and Cost Management examinations under the new system.

The validity of the results of any of the subjects transferred from the current to the new system will be extended to 2013.

IFRS newsletters available in Chinese

The following Chinese language IFRS newsletters are now available. They are translations of the English language versions, which can be found Here.

• Amendments Proposed for IFRICs 9 and 16 (PDF 134k)
• Proposals for a New Standard on Consolidation (PDF 222k)
• Discussion Paper Proposes New Basis for Revenue Recognition (PDF 197k)
• Additional Disclosures Proposed for Investments in Debt Instruments (PDF 110k)
• Proposed Amendments regarding the Assessment of Embedded Derivatives on Reclassification (PDF 105k)
• Closing Out 2008 (PDF 335k)

Two new IAS Plus Newsletters in Chinese

Deloitte (China) has published two special edition IAS Plus Newsletters on recently issued standards and interpretations in Chinese . Download links are below. The newsletters are translations of the English language versions, which can be found Here. IAS Plus Newsletter on IFRIC 17 (PDF 137k) IAS Plus Newsletter on IFRS 1 (PDF 144k) Our CAS Plus Website has more information in Chinese.

IAS Plus Newsletter on Reclassifications Under IAS 39, in Chinese

Deloitte China has translated into Chinese the October 2008 IAS Plus Special Edition Newsletter explaining the IASB's recent amendments to IAS 39 that permit an entity to reclassify non-derivative financial assets out of the 'fair value through profit or loss' (FVTPL) and 'available-for-sale' (AFS) categories in limited circumstances. You can download this newsletter from the Deloitte China CAS Plus Website.

14 IAS Plus Newsletters in Chinese

Deloitte China has translated the following 14 IAS Plus Special Edition Newsletters into Chinese. Download links are on a new page on the Deloitte China CAS Plus Website: August 2008 Special Edition – Exposure Draft on Earnings per Share August 2008 Special Edition – IASB Releases Omnibus Exposure Draft of Annual Improvements for 2008 July 2008 Special Edition – Exposure Draft on Conceptual Framework Objective and Qualitative Characteristics July 2008 Special Edition – Discussion Paper on Reporting Entity July 2008 Special Edition – IAS 39: Eligible Hedged Items July 2008 Special Edition – IFRIC 16: IFRIC Issues Interpretation on Net Investment Hedging July 2008 Special Edition – IFRIC 15: Accounting for Agreements for the Construction of Real Estate May 2008 Special Edition – Amendments to IFRS 1 and IAS 27 on Cost of Investments in Subsidiaries, Associates, and Jointly Controlled Entities May 2008 Special Edition – Improvements to IFRSs 2008 January 2008 Special Edition – Business Combinations: IASB revises IFRS 3 and IAS 27 September 2007 Special Edition on IAS 1 (Rev) – Revised Standard on Presentation of Financial Statements June 2007 Special Edition – IFRIC 13 Customer Loyalty Programmes December 2006 Special Edition – IFRS 8 Operating Segments December 2006 Special Edition – IFRIC 12 Service Concession Arrangements

MOF issues official Interpretation of CASs #2

The PRC Ministry of Finance has issued its second official interpretation of the new Chinese Accounting Standards. It deals with the following six issues:

• Companies issuing both A and H shares should adopt same accounting policies and accounting estimates except for the two substantial differences identified in HK-PRC joint declarations on accounting standards signed in December 2007
• Accounting for acquisition of additional interest in subsidiaries, and adjustments of book value of an entity or its subdiaries in reorganisation for setting up of a company
• Treatment of joint ventures in consolidated financial statements
• Accounting for warrants attached to separately tradable convertible bonds
• Accounting for BOT projects, which are similar to service concession arrangements in IFRSs
• Accounting for sales-and-leaseback transactions deemed to be operating lease.

Six new IAS Plus Newsletters in Chinese

Deloitte (China) has published six special edition IAS Plus Newsletters on recently issued standards and interpretations in Chinese . Download links are below. The newsletters are translations of the English language versions, which can be found Here. IAS Plus Newsletter on IFRS 1 and IAS 27 (PDF 162k) IAS Plus Newsletter on IFRS 3 (PDF 221k) IAS Plus Newsletter on IFRS 8 (PDF 152k) IAS Plus Newsletter on IAS 1 (PDF 187k) IAS Plus Newsletter on IFRIC 12 (PDF 172k) IAS Plus Newsletter on IFRIC 13 (PDF 147k)

Our CAS Plus Website has more information in Chinese.

IAS Plus Newsletter on improvements to IFRSs - in Chinese

On 27 May 2008, we posted Deloitte's special edition IAS Plus Newsletter on Improvements to IFRSs 2008 (PDF 136k, English). Our News Story of 22 May 2008 announced these revisions. Deloitte (China) has published a Chinese Translation of the Newsletter on the Improvements to IFRSs (PDF 213k).

April 2008: FASB and CASC sign memorandum of understanding

The Financial Accounting Standards Board (FASB) and the China Accounting Standards Committee (CASC) have issued a Memorandum of Understanding (MOU) articulating their commitment to strengthen cooperation and communication between the two standards-setting organisations. The two groups met at the FASB's offices in Connecticut to discuss how the two countries can work together on issues pertaining to international convergence of accounting standards. As a result of the meeting, the organisations expressed the following in the MOU:

Click for Press Release PDF 73k).

Third batch of Questions and Answers from MOF on new Chinese Accounting Standards

In February 2006, the China Accounting Standards Committee (CASC) adopted a comprehensive set of New Chinese Accounting Standards (CASs) that took effect for the 2007 financial reports of listed companies in China. Unlisted companies are encouraged also to use the new CASs. The new CASs cover nearly all of the topics under the current IFRSs and, with a few exceptions, are substantially in line with IFRSs. Since then, the MOF has been issuing both mandatory Interpretations and less formal guidance for applying the new standards. The guidance, which is being developed by an expert team formed by the CASC, includes two sets of Questions and Answers published in February and April 2007. On 21 January 2008, this team issued a Third Set of Q&A (PDF 96k, Chinese) addressing the following issues:

1. Accounting for restricted shares by an investor who does not have control, joint control, or significant influence.
2. Accounting for warrant that are issued together with a bond.
3. How to apply the Interpretation to CASs No. 1 retrospectively to investments in subsidiaries that are obtained before the date of first-time adoption of new CASs.
4. Determining the value of the underlying assets and liabilities in the corporate reorganisation of state-owned enterprises.
5. Accounting by securities investment funds and similar entities.

Practical Guide to CAS 18 Income Taxes

Deloitte (China) has published a Practical Guide to CAS 18 Income Taxes (PDF 1,736k) in Chinese language. The concepts and requirements of CAS 18 Income Taxes are based on the temporary difference approach in IAS 12 Income Taxes. CAS 18 (and other new CASs) went into effect for the first time for 2007 reporting. Previously, many companies did not recognise deferred taxes or, where they did, they followed a timing difference approach. This new 133-page guide from Deloitte (China) approaches the subject from a practical perspective – illustrating the underlying principles with numerous examples.

December 2007: 'An Accounting Revolution is Brewing in China'

Paul Pacter, webmaster of IAS Plus, has written an article titled 'An Accounting Revolution Is Brewing in China', published in the December 2007 issue of Financial Executive, the journal of Financial Executives International. Paul discusses the capital markets in China today, the recent history of financial reporting in China, changes caused by the new Chinese Accounting Standards (CASs) that went into effect in 2007, and remaining differences between CASs and IFRSs.

Click to download An Accounting Revolution is Brewing in China (PDF 268k), which is copyright 2007 Financial Executives International and is posted here with FEI's kind permission.

December 2007: Closing Out 2007 IAS Plus Newsletter in Chinese

In our News Story of 21 December 2007, we reported on a special edition of our IAS Plus Newsletter titled Closing Out 2007. That newsletter summarises all of the new and revised IASB Standards and Interpretations in effect for December 2007 year ends and beyond. We have prepared a Chinese Language Version of that newsletter (PDF 302k).

December 2007: HK-PRC joint declarations on accounting and auditing standards

The mainland Chinese and Hong Kong accounting and auditing standard setters have signed joint declarations regarding mutual recognition of their accounting and auditing standards.

December 2007: MOF issues official Interpretation of CASs #1

The Ministry of Finance has issued its first official interpretation of the new Chinese Accounting Standards. It deals with the following ten issues:

• First time adoption of new CASs by companies issuing A and B shares or A and H shares
• Transactions or events not addressed directly in new CASs
• Initial direct expenses incurred for obtaining a lease and costs incurred in securing a construction contract
• Conditions for recognising a financial instrument as equity
• Embedded derivatives in insurance contracts and lease contracts
• Held for sale non-current assets
• Transactions with associates or joint ventures and accounting for investments in subsidiary
• Accounting for restricted shares
• Deferred tax on unrealised profits on intergroup transactions
• Recognition and measurement of assets and liabilities in restructurings

China drops IFRS reporting for listed companies

The China Securities and Regulatory Commission (CSRC) has withdrawn its requirement that companies listed on Chinese stock exchanges that issue 'B' shares must publish audited financial statements that conform to International Financial Reporting Standards (IFRSs) in addition to financial statements that conform to Chinese Accounting Standards (CASs). 'B' shares are equity securities that trade in US dollars (Shanghai) and Hong Kong dollars (Shenzhen) and, prior to 2001, could not be purchased by residents of mainland China.

Currently, of the 1,477 companies listed on the Shanghai and Shenzhen Stock Exchanges, 109 have issued 'B' shares. In 2006, China adopted a completely new set of CASs that are based on and generally consistent with IFRSs, with a few exceptions. These new standards go into effect this year (2007) for listed companies. The CSRC concluded that because CASs are similar to IFRSs, the dual reporting requirement is no longer necessary. The CSRC decision is reported in Zhengjian Kuaiji Zi[2007] No. 30 (PDF 144k, Chinese language, from CSRC Website).

Deloitte's comparison of the new CASs and IFRSs:

• Comparison of IFRSs and New Chinese Accounting Standards – in English (PDF 348k, August 2006).
• Comparison of IFRSs and New Chinese Accounting Standards – in Chinese (PDF 877k, July 2006).

China expands the use of its new IFRS-based standards

On 16 February 2006, the Ministry of Finance (MOF) of the People's Republic of China announced that it had adopted a new basic standard and 38 new Chinese Accounting Standards (CASs) that are substantially in line with International Financial Reporting Standards, with a few exceptions. The MOF required all listed companies to start using the new CASs in their 2007 annual financial statements. The MOF has now announced that use of the new CASs will be expanded to all state-owned enterprises controlled by the Chinese central government starting in 2008, and then to all large and medium-sized companies in China starting in 2009.

Further guidance on new Chinese Accounting Standards

In our news story of 21 November 2006 we reported that the Ministry of Finance of China issued a 263-page book of implementation guidance on 32 of the 38 new Chinese Accounting Standards* (CASs) that were adopted by the China Accounting Standards Committee (CASC) in February 2006, effective for 2007 financial reports. Those new CASs must be used by all Chinese listed companies and may be used by unlisted Chinese companies. The MOF has recently published additional guidance on the CASs as follows:

The November 2006 MOF implementation guidance is available in Chinese – Click to Download in ZIP Format (4,009k ZIP). Alternatively, all of the CASs and guidance can be downloaded in Chinese from the official website of China Accounting Standards Committee www.casc.gov.cn/kjfg/200607/t20060703_337130.htm.

*Note that when the 38 new standards were adopted in February 2006, they were generally referred to in English as Accounting Standards for Business Enterprises, or ASBEs. Because of possible confusion of that term with some older pronouncements, the MOF now refers to the 38 new standards as Chinese Accounting Standards, or CASs.

Second batch of Questions and Answers from MOF on New CASs

The China Accounting Standards Committee has formed an expert team for the purpose of providing advice on implementing the new China Accounting Standards (CASs) which are applicable to listed PRC entities from 1 January 2007. On 30 April 2007, this expert team issued a second batch of questions and answers (Q&As) regarding implementation issues of the new CASs. In February we issued a technical bulletin (CTB 08/2007) in relation to the first batch of Q&As. The second batch covers the following issues:

1. Subsequent measurement of investment properties.
2. Termination benefits (employee benefits).
3. Classification of held for trading and available for sale financial assets.
4. Determination of the applicable tax rate for deferred tax calculation.
5. How to account for the Capital Surplus (within equity) arising from the previous accounting rules.
6. Sale and lease back transactions and operating lease incentives.
7. Deferred tax on unrealised profits which are eliminated on consolidation.
8. Financial reporting of funds.

Corporate governance in China – some improvements, but...

The CFA Institute Centre for Financial Market Integrity has published a study on corporate governance in China. The findings show that while the Chinese government has done much to put in place a sound corporate governance framework, observable changes are still not evident in financial disclosures and transparency, which are viewed by the survey respondents as very important for decision-making. The CFA Institute represents 89,000 professional financial analysts. With regard to accounting standards, the report notes:

• China Corporate Governance Survey (PDF 372k)
• Press Release (PDF 18k)

First batch of Questions and Answers from MOF on New CASs

The China Accounting Standards Committee has formed an expert team for the purpose of providing advice on implementing the new China Accounting Standards (CASs) which are applicable to listed PRC entities from 1 January 2007. In February 2007, this expert team issued its first batch of questions and answers (Q&As) regarding implementation issues of the new CASs. The Q&As cover the following issues:

1. Business combinations involving entities under common control.
2. Accounting for equity investment difference (debit balance) on first-time adoption of new CASs.
3. Applicable tax rate for deferred tax computation purpose.
4. Accounting for provision of safety expenses for special industries.
5. Accounting for settlement of debt due to the listed company by its shareholder by the shareholder's investment in that listed company.
6. Accounting for the right arising from removing the trading restriction from non-tradable shares of listed companies.
7. Accounting for fair value movement of financial assets by certain insurance companies.
8. Acquisition of minority interest.
9. Accounting for transferring consumable biological assets or bearer biological assets to welfare biological assets.
10. Transitional arrangement for A and H shares on first time adoption of new CASs.

Guidance on implementing IFRS-based standards in China

The Ministry of Finance of China has issued limited implementation guidance on 32 of the 38 Accounting Standards for Business Enterprises (ASBEs) that it adopted in February 2006, effective for 2007 financial reports of Chinese listed companies. The table below has the complete list of the new ASBEs. The guidance covers ASBEs 1-14, 16-24, 27, 28, 30, 31, 33, 34, 35, 37, and 38. The MOF guidance is currently available only in Chinese Click to Download in ZIP Format (4,009k ZIP). Alternatively, all of the ASBEs and guidance can be downloaded in Chinese from the official website of China Accounting Standards Committee www.casc.gov.cn/kjfg/200607/t20060703_337130.htm.

• Administrative rules for initial public offerings and listing of shares
• Administrative rules for making public issues by listed companies
• The standard for the form and content of information disclosed by companies making public issues
  • No. 1 Prospectus for Initial Public Offering (2006 revised)
  • No. 9 Application documents for initial public offering and listing of shares (2006 revised)
  • No. 10 Application documents for listed companies making public issues
  • No. 11 Prospectus for fund raising by listed companies making public issues

The CSRC also issued following documents:

• Guidance for Memorandum of Association of Listed Companies (2006 revised)
• Rules for Shareholders Meeting of Listed Companies

The Shanghai Stock Exchange has issued internal control guidance for companies listed on that exchange. The Ministry of Finance has issued a notice relating to certain accounting matters in the implementation of the revised Companies Law.

Agreement between US SEC and China CSRC

The United States Securities and Exchange Commission (SEC) and the China Securities Regulatory Commission (CSRC) announced today a new relationship to increase their c-operation and collaboration through an enhanced bilateral dialogue. Meeting at SEC headquarters in Washington, D.C., SEC Chairman Christopher Cox and CSRC Chairman Shang Fulin presented terms of reference that establish the structure of this enhanced dialogue and discussion subjects for the agenda during 2006. Several aspects of the dialogue relate to financial reporting. The new dialogue has three primary objectives:

• to identify and discuss securities markets regulatory developments of common interest, particularly those relevant to reporting requirements for public companies listed in one another's markets;
• to improve cooperation and the exchange of information in cross-border securities enforcement matters; and
• to continue and expand upon the existing program of training and technical assistance provided by the SEC to the CSRC.

In setting out the areas of dialogue for the agenda in 2006, the following regulatory issues for discussion were identified:

• corporate governance reforms, including requirements for audit committees, auditor independence and internal controls over financial reporting;
• convergence of national accounting standards with International Financial Reporting Standards; and
• the use of information technology, including interactive data tagging systems, to enhance the usefulness of reported of financial information.

Click or Press Release (PDF 39k).

Market developments

The China Securities Regulatory Commission had a number of bright announcements. New listings will resume soon on the Shanghai and Shenzhen markets, after being banned for the last year because of difficulties in converting non-tradeable shares to tradeable. Also, China will allow companies and individuals to invest their money overseas starting May 1. The new rules would allow Chinese citizens to purchase up to US$20,000 per year in foreign currency. And lastly, the CSRC will introduce margin trading and securities lending to prepare for the opening of a futures exchange early next year.

New Accounting Standards for Business Enterprises

On 15 February 2006, the Ministry of Finance of the People's Republic of China (the 'MoF') formally announced the issuance of the long awaited Accounting Standard for Business Enterprises ('ASBE'). The ASBE consists of the Basic ASBE and 38 Specific ASBEs. These ASBEs cover nearly all topics under the current IFRS literature. These standards, which are effective from 1 January 2007, will become mandatory for all listed Chinese enterprises. Other Chinese enterprises are also encouraged to apply these standards. The ASBE replaces the existing Chinese Accounting Standards (CASs) and an earlier version of the ASBE. The applicability of the CASs and the older version of the ASBE is not changed except for those entities required or electing to adopt the new ASBEs.

The new ASBEs are substantially in line with IFRSs, except for certain modifications that reflect China's unique circumstances and environment.

During the formulation of these standards, as mentioned in the Joint Statement of the CASC and the Chairman of the IASB (PDF 11k) in November 2005, the MoF identified a number of accounting issues that might help to provide an insight for the IASB in finding high quality solutions for IFRSs. They include disclosure of related party transactions (particularly the 'state controlled enterprises exemption'), business combinations of entities under common control, and fair value measurement.

The ASBEs change the primary basis of accounting in Mainland China. It is not simply an expansion of the disclosure requirements. These ASBEs may have a significant effect on how the an entity's financial position and performance are presented in the financial statements. For example:

• Share-based payment transactions for employee services are recognised as expenses in the income statement.
• A business combination not involving entities under common control is accounted for by the acquisition method. Under that method, assets and liabilities of the acquired entity are measured at fair value.
• Goodwill (referred to as the "debit balance of equity investment difference" in current CASs) and indefinite life intangible assets are no longer amortised but, instead, must be tested at least annually for impairment.
• Discount on acquisition of a business (referred to as "credit balance of equity investment difference" in current CASs) is credited to income immediately.
• Minority interest is presented within equity.
• Non-monetary asset-related grants are presented as deferred income and recognised as income evenly over the useful life of the asset.
• Development costs are capitalised if certain criteria are met.
• Reversal of all impairment losses is prohibited.
• All derivatives are recognised on the balance sheet, with changes in fair value taken to the income statement, unless they are designated and effective hedging instruments.
• Investment property may be measured at fair value with changes in fair value recognised in the income statement. The cost-depreciation-impairment model is also allowed.
• Non-monetary transactions are measured at fair value if commercial substance can be substantiated.
• Gains on debt restructuring, as well as losses, are recognised in the income statement.
• Finance lease assets are recognised by the lessee at the lower of fair value of the leased asset and the present value of minimum lease payments.
• The tax effect of all temporary differences between the tax basis and the carrying amount of assets and liabilities is recognised, other than differences arising on initial recognition.
• When an instrument that has both liability and equity components (such as a convertible bond) is issued, the debt and equity components are accounted for separately.

PRC Auditing Standards

The Chinese Institute of CPAs has been adopting nearly all International Standards on Auditing issued by the International Auditing and Assurance Standards Board (IAASB). Click for a Comparison of PRC and IAASB Auditing Standards (PDF 144k) at April 2006.

China adopts 38 new accounting standards

On 16 February 2006, the Ministry of Finance (MOF) of the People's Republic of China announced that it has adopted a new basic standard and 38 new Chinese Accounting Standards that are substantially in line with international standards, though a few exceptions are noted. The basic standard is akin to a conceptual framework, and the 38 standards address nearly all over the issues covered in International Financial Reporting Standards. The MOF has also adopted 48 new Chinese Auditing Standards that are similar to International Standards on Auditing issued by the International Auditing and Assurance Standards Board. Click for a List of the New Chinese Accounting Standards (PDF 123k English and Chinese). The new accounting and auditing standards will become effective for listed enterprises from 1 January 2007. Other enterprises are encouraged to adopt them.

The MOF issued a Press Release (PDF 17k) elaborating on the new accounting and auditing standards.

Deloitte Touche Tohmatsu (China) has served as consultants to the MOF in developing Chinese Accounting Standards since 1993. The MOF announced the new standards in a ceremony in the Great Hall of the People, in Beijing. IASB Chairman David Tweedie participated, saying that he expected China's speedy move toward international standards is likely to spur some other countries in the Asia-Pacific region to do the same.

Accounting Guidelines

In the second half of 2005, the Ministry of Finance (MOF) issued the following accounting guidelines.

• Accounting Guidelines for Enterprises engaged in Guarantee Activities. This guideline (issued in November 2005) sets out the supplementary accounting statements, the additional accounts, and specific accounting treatments applicable to enterprises engaged in the provision of guarantee activities. The guideline became effective on 1 January 2006.
• Temporary Requirement in respect of Share Reforms of Listed Enterprises. This guideline (issued in November 2005) prescribes the accounting treatment of share reforms of the enterprises listed on the PRC stock exchanges. Share reform refers to the change of the status of certain 'non-circulating' equity shares of a listed enterprise to 'circulating' shares. The pronouncement lists out seven methods an entity may employ to acquire the 'circulating share' status and the corresponding accounting treatments.
• Temporary Requirement in respect of Recognition and Measurement of Financial Instruments. This guideline (issued in September 2005) is applicable to listed commercial banks and commercial banks that are in the process of seeking a listing status. It was drafted by reference to IAS 39 and it requires financial assets to be classified into four categories: held-for-trading financial assets, held-to-maturity securities, loans and receivables and available-for-sale financial assets. Financial liabilities are classified as held-for-trading and other financial liabilities.

Exposure Drafts of Accounting Standards

The MOF issued the following exposure drafts in respect of accounting standards during the second half of 2005. The standards have been drafted by reference to the corresponding IASs after considering the specific circumstances in the PRC:

• Investment properties (issued in July 2005)
• Impairment of assets (issued in July 2005)
• Biological assets (issued in July 2005)
• Donation and subsidies (issued in July 2005)
• Business combinations (issued in July 2005)
• Consolidated financial statements (issued in July 2005)
• Extraction of oil and natural gas (issued in July 2005)
• Employee remuneration (issued in August 2005)
• Income Taxes (issued in August 2005)
• Earnings per share (issued in August 2005)
• Enterprise annuity funds (issued in August 2005)
• Insurance contract (issued in August 2005)
• Re-insurance contract (issued in August 2005)

Regulatory Pronouncements issued by CSRC

The China Securities Regulatory Commission (CSRC) has recently revised two disclosure standards applicable to listed enterprises: namely No. 2 Content and Format of Annual Reports and No.5 Content and Format of Statement of Changes in Share Capital.

The revised standard on content and format of annual reports require more detail disclosure under the section of 'Management Discussion and Analysis', including an analysis of the operating environment, changes in net assets and income, cash flows and information of holding companies as well as future operating strategies. The revised standard on changes in share capital requires disclosure of the information of the share reform arrangements.

Auditing Standards Issued by CICPA

Representatives of the China Auditing Standards Committee (CASC) and the International Auditing and Assurance Standards Board (IAASB) released a joint statement on 8 December 2005, stating international convergence on auditing standards is the goal of both the CASC and the IAASB.

The Chinese Institute of Certified Public Accountants (CICPA) has issued the following exposure drafts of proposed amendments to certain existing auditing standards during 2005 and early 2006:

• Objective and General Principles Governing the Audit of Financial Statements
• Audit Evidence
• Audit Engagement Letter
• Documentation of Audit
• Consideration of Fraud in an Audit of Financial Statements
• Communications with Those Charged with Governance
• Planning an Audit

CICPA issued the following exposure drafts of new auditing standards:

• Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
• The Procedures in Response to Assessed Risks of Material Misstatement
• Comparatives
• Quality Control for Professional Work
• Quality Control for Audits of Financial Statements
• Framework for Assurance Engagement
• Reports in respect of Compliance with International Financial Reporting Standards
• Consideration Relating to Entities Using Service Organization
• Assurance Engagements Other than Audits or Reviews of Historical Financial Information
• Compilation of Financial Information
• Auditing Fair Values Measurements and Disclosures
• Auditing Derivative Financial Instruments
• The Consideration of Environmental Matters in the Audit of Financial Statements
• The Relationship Between Banking Supervisors
• Electronic Commerce - Effect on the Audit of Financial Statements

China requires internal control reports by listed companies

The China Securities Regulatory Commission – China's securities regulator – is requiring that a company listed on a Chinese stock exchange must (a) perform a self-assessment of its internal controls and (b) engage an external auditor to evaluate its internal controls and comment on its self-assessment report. This requirement, which is effective for 2005 calendar year-end audits, is similar to that in Section 404 of the US Sarbanes-Oxley Act. Here is the new Chinese Regulation (PDF 169k, Chinese only).

China moves toward adoption of ISAs

The Chinese Auditing Standards Board (CASB) and the International Auditing and Assurance Standards Board (IAASB) have released a joint statement in which the CASB states its intention to converge Chinese auditing standards with the IAASB's International Standards on Auditing (ISAs). To date the CASB has adopted 26 Chinese auditing standards. Seventeen exposure drafts are currently outstanding, and five more will be issued soon. The CASB has made amendments to some of the ISAs and also has issued Chinese standards to deal with matters not covered in the ISAs. In the joint statement, the Ministry of Finance states its intention to "eliminate, over time, as the environment in China changes, those differences between Chinese auditing standards and the ISAs that still exist". Click to Download the Joint Statement (PDF 987k).

Progress toward IFRS convergence in China

Representatives of the China Accounting Standards Committee (CASC) of the People's Republic of China and the International Accounting Standards Board (IASB) met in Beijing on 7 and 8 November 2005 to discuss a range of issues relating to the convergence of Chinese Accounting Standards (CASs) with International Financial Reporting Standards (IFRSs). At the conclusion of the meeting, the two delegations released a joint statement setting out key points of agreement, including the following:

Click for:

• Press Release (PDF 62k)
• Joint Statement (PDF 11k)

1. Accounting System for Co-operative Economic Organisations of Villages

The Ministry of Finance (MOF) issued an accounting system for the c-operative economic organisations set up by the local villagers. This System supersedes the Provisional Accounting System for c-operative Economic Organisations of Villages issued in 1996 and is effective from 1 January 2005 onwards. It prescribes the fundamental accounting principles and the chart of accounts that such c-operative organisations should follow in preparing its accounting records.

2. Transitional Requirement from the Old Accounting System for Not-for-Profit Organisations to the New Accounting System for Not-for-Profit Organisations

The new Accounting System for Not-for-Profit Organisations is effective from 1 January 2005 onwards. In view of the differences between the old and the new Systems, the MOF issued this pronouncement in October 2005 to provide detailed guidance on the transitional arrangements.

3. Accounting Guideline for Investment Enterprises

This Guideline, issued in October 2005, is effective from 1 January 2005 onwards and applies to all investment enterprises that adopt the Accounting System for Business Enterprises (ASBE). This Guideline introduces new accounts that are specific to investment enterprises, for example, designated borrowings, government designated investments, interest expenses, and interest income. Based on the accounting principles set out in the ASBE, the Guideline prescribes the accounting treatment of operating income and operating expenses of an investment enterprise.

4. Transitional Requirement of the Accounting System for Small Business Enterprises (ASSBE)

The ASSBE was issued by the MOF in April 2004 and is effective from 1 January 2005 onwards. It allows qualified small enterprises to choose whether to follow the ASBE or the ASSBE. This pronouncement was issued by the MOF in October 2004 to provide transition guidance to small industrial enterprises that adopt the ASSBE for the first time.

5. Accounting Guideline for Enterprises of the Film Industry

The MOF issued this Accounting Guideline in December 2004. The Guideline applies to enterprises that adopt the ASBE and carry out film related activities, including the production, processing, import, export, distribution, and the showing of commercial movies. This Guideline sets out the accounting treatment of income and expenditure items whose nature is specific to the film industry. According to the Guideline, films rights owned or controlled by an enterprise (including copyrights and film use rights) should be classified as current assets and amortised over the effective period stipulated by law or contract. The Guideline also recommends TV production enterprises to establish their accounting policies by reference to the requirement of this Guideline.

6. Accounting Guideline for Enterprises of the Shipping and Port Industry

This Guideline was issued in December 2004. It applies to enterprises engaged in the following operations that adopt the ASBE:

• Shipping companies: transportation of passengers and goods by sea or river, and
• Port operators: Provision of port and terminal services.

The Guideline is effective from 1 January 2005 onwards. It provides detailed guidance on the accounting treatment of different kinds of income (for example, freight charges for passengers and goods, container fees, storage fees, and other port service fees) and expenses (for example, allocation of fixed costs of vessels, container fees, crew salaries, and tax expenses) incurred by shipping companies and port operators. It requires:

• Depreciation charge should be determined separately for each significant part of an item of property, plant and equipment, with specific requirements for depreciation of vessels.
• The percentage of completion method should normally be used for sea journeys covering more than one accounting period.

If the number of sea journeys and related income are consistent between different years, the voyage completion method may be used.

1. Accounting Guideline for Railway Transportation Enterprises

In July 2004, the Ministry of Finance (MOF) issued a new accounting guideline for Railway Transportation Enterprises. This new Guideline replaced the Accounting System for Transportation (Railway) Enterprises issued in 1993. It is effective from 1 January 2004 onwards and it applies to all railway transportation enterprises that adopt the Accounting System for Business Enterprises.

2. ED - Provisional Regulations on Accounting Treatment of Transfer of Financial Assets of Financial Institutions

This ED, issued in September 2004, prescribes the accounting treatment for the transfer of financial assets by financial institutions. The accounting principles followed in the ED are generally consistent with IAS 39, including a continuing involvement approach if a financial institution has neither transferred nor retained substantially all the risks and rewards of the ownership of the financial assets.

3. Exposure Drafts of Independent Auditing Standards

• No 1 Objective and General Principles Governing an Audit of Financial Statements
• No 5 Audit Evidence
• No 29 Understanding the Entity and its Risk Environment and Assessing the Risks of Material Misstatement
• No 30 Procedures in Response to Assessed Risks of Material Misstatement

These auditing pronouncements are based on following equivalent International Standard on Auditing (ISA):

• ISA 200 Objective and General Principles Governing an Audit of Financial Statements
• ISA 315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement
• ISA 330 The Auditor's Procedures in Response to Assessed Risks
• ISA 500 (Revised) Audit Evidence

Q&A on Accounting System for Business Enterprises (ASBE)

In May 2004, the Ministry of Finance (MOF) issued a series of authoritative questions and answers covering the following matters:

• Share issue costs
• Equity investment difference (goodwill) arising in step acquisitions
• Impairment of equity investments accounted for by the equity method
• Reversal of impairment losses in respect of fixed assets and intangible assets
• Change in the depreciation method for fixed assets
• Derecognition of discounted receivables
• Accounting for the tobacco business tax by tobacco enterprises
• Recognition of provisions and their tax effects
• Accounting by property developers for costs of developing rental property
• Provision for safety costs incurred by coal producing enterprises

SME Accounting System

In April 2004, the MOF issued a new Accounting System for Small Enterprises (ASSE) with effect from 1 January 2005. Qualified small enterprises are allowed to choose the adoption of ASSE or ASBE. If a parent adopts the ASBE, its subsidiaries must also adopt the ASBE even though they qualify as small enterprises. If a small enterprise adopts the ASSE but its size subsequently changes so that it no longer qualifies as a small enterprise for three years, that enterprise should change to the ASBE. A small enterprise is one:

• that does not raise funds from the public (that is, has not issued shares or debt securities to the public). A small enterprise may still borrow from banks;
• whose operations are relatively small as defined in a document jointly issued by four government bodies covering number of employees, sales volume and total assets (to ensure consistency with national requirements. See illustration below;
• that is not a sole proprietorship or a partnership; and
• that is not a financial institution.

An example of the size test for a small enterprise: a small enterprise is one that is below any one of the following criteria:

The ASSE provides a number of simplifications or exemptions as compared to the ASBE in such areas as impairment of assets, equity method investments, finance leases, capitalisation of borrowing costs, post-balance-sheet-date events, and which financial statements are required.

ED on Derivative and Hedge Accounting

In July 2004, MOF issued an ED on Derivative and Hedge Accounting for Financial Institutions. The general principles are:

• Derivative instruments should be measured at fair value (at initial recognition and at the end of each period).
• Hedges are classified as fair value hedges, cash flow hedges, and hedges of the net investment in a foreign operation, and the accounting is similar to the IAS 39 requirements.
• Disclosure of risk management objective and policies and, for hedge accounting, the hedging relationship, description of hedging instruments and their fair value, and nature of risk mitigated, with further disclosures for cash flow hedges.

Accounting Guideline for Enterprises Engaging in Publishing Business

The Ministry of Finance (MOF) has issued an Accounting Guideline for Enterprises Engaged in the Publishing Business (including books, newspapers, periodicals, printing, and audio and video products). This Guideline is applicable to those publishing enterprises that have adopted the Accounting System for Business Enterprises, starting from 1 January 2004.

The Guideline specifies the general principles for recognising revenue and related costs for sales of goods:

• risks and rewards have passed to the buyer;
• no continuing managerial involvement and no control retained over the goods sold;
• the relevant economic benefits will flow to the enterprise; and
• revenue and cost can be measured reliably. Those principles are the same as those set out in the MOF's standard on revenue.

In addition to the general principle, the guideline also sets out special principles relating to credit sales, instalment sales, cash sales, sales where cash will be received by another party, consignment sales, sales when right of return exists.

Accounting System for Financial Enterprises

The scope of MOF's Accounting System for Financial Enterprises, which was adopted in 2002 for listed financial institutions and foreign invested financial institutions, was extended to unlisted non-foreign invested brokerages starting 1 January 2004.

Asset Valuation Standards

MOF has adopted certain standards for asset assessments (valuations) that must be followed when such valuations are reflected in the financial statements. The standards are intended to be broadly consistent with International Valuation Standards. The MOF expects to develop implementation guidance for various classes of assets.

CICPA Activities

To improve the self-regulating structure and practices of the accountancy profession in China, the Chinese Institute of Certified Public Accountants has established four special committees:

Auditing Standards Committee

• To develop proposed independent auditing standards, including an exposure draft and comments prior to final adoption.

• To discipline those CPA firms and CPAs who violate regulations.

• To consider an appeal of a decision of punishment made by the Discipline Committee and to affirm or modify the decision.

• To protect the rights of the accountancy profession and members of the profession.

CICPA Technical Bulletin No. 8

The CICPA Technical Expert Team issued this bulletin on 19 February 2004. It deals with five issues:

• Four questions in connection with the application of a provisional regulation relating to Impairment Losses of Assets issued in 2003.
• How to account for "surplus reserves" (a special reserve under PRC law) when an investment no longer qualifies for consolidation because the investor no longer has a majority interest.
• How a parent should account for a dividend receivable by the minority interest in a subsidiary when the parent acquires the minority interest including the dividend receivable.
• Offsetting in the balance sheet of amounts receivable from and payable to the same party.
• Three questions relating to "capital surplus" (a special reserve under PRC law).

• The Ministry of Finance issued a third set of Q&A on the Accounting System for Business Enterprises.

• MOF is developing accounting guidance for specific classes of financial institutions:
  • Brokerages: Issued August 2003.
  • Banks: Expected 2004.
  These financial institutions would follow both the existing Accounting System for Financial Institutions and the system for their specific type of financial institution.

• The Technical Expert Team of the Chinese Institute of CPAs, has issued two Guidance Bulletins:

  Bulletin #6 (4 August 2003) addresses:

  • Debt-equity conversions.
  • Accounting for tree planting.
  • Costs of issuing convertible bonds - property development industry.
  • Auditing of shipping companies that own foreign-registered ships.
  • Expenses of debt restructurings.

  Bulletin #7 (5 December 2003) addresses:

  • Income tax relating to ownership change.
  • Definition of cash and cash equivalents.
  • Classification of rights to collect highway tolls.
  • Land transfer taxes - capital verification of land use rights and cash.
  • Accounting for investments in schools.
  • Net asset certificates for private schools.
  • Whether to recognise gain on 'asset swaps' of an entire business.

• Outstanding Exposure Drafts:
  • Presentation of financial statements.
  • Earnings per share.
  • Discontinuing operations.
  • Government grants and assistance.
  • Foreign currency translation.
  • Segment reporting.

• The China Securities Regulatory Commission has adopted a new auditor rotation requirement. After five years, an individual CPA who signs an audit report and the person in charge of the audit must rotate off audit of a listed company. The rule is effective 2004. For companies with listed A-shares, for which two CPAs sign the audit report, if in 2004 if both already have more than five years on the engagement, only one must rotate off. The other has one extra year. For an IPO company, those persons must rotate off in the third year after the IPO. These are requirements for rotation of people, not firms.

Broadened applicability of Accounting System for Business Enterprises (ASBE). All newly formed companies (other than very small ones and financial institutions) must adopt the ASBE. Previously, listed companies, joint stock limited enterprises, and foreign invested enterprises were required to follow the ASBE.

Consolidation. The MOF announced that only the following four classes of companies must prepare consolidated financial statements:

• Listed enterprises
• Export companies
• State asset management enterprises
• Others if required by a governmental agency.

In another change to the consolidation rules, a subsidiary may no longer be removed from consolidation based on management's intent to dispose of the subsidiary. It must be consolidated until disposal.

Segment information. The requirement to disclose segment information, initially applicable to all companies that follow the ASBE, has been narrowed to listed companies only, basically the same as IAS 14 and US GAAP.

Hook-up fees. The MOF has issued guidance on accounting for hook-up fees - nonrefundable up-front connection fees received by telephone, electric, gas, cable t.v., and similar public utilities. Such fees cannot be recognised as revenue up front but, rather, must be amortised over the contract or other expected period of benefit to the company.

Accounting System for Financial Institutions. The scope of application of this System, which was adopted in 2002, will be extended to unlisted brokerages starting 1 January 2004.

Outstanding Exposure Drafts - Final Standards expected 2003 or 2004:

• Presentation of financial statements
• Earnings per share
• Discontinuing operations
• Government grants and assistance
• Foreign currency translation
• Segment reporting

Quarterly reports of listed companies. In March 2003, the China Securities Regulatory Commission (CSRC) changed its guidelines on quarterly reporting. Quarterly reports must include information about significant accounting policy changes, error corrections, and explanations for any changes in scope of consolidation. Disclosure is also required about changes to any senior executive management positions or controlling shareholders, serious court cases and final rulings, and the total amount of guarantees and cash assets entrusted to other institutions.

Certification of financial statements by executives and other disclosures. In January 2003 the CSRC revised its Form and Content Standard No. 2 for corporate annual reports and accounts (effective for 2002 financial reports) to require, among other things that managers and financial executives guarantee in writing that the information contained in the financial reports is true and complete. The revised rules also standardise the format of the annual report summary by including a reporting format in an appendix.

Accounting System for Not-for-Profit Organisations. The MOF has issued for comment an exposure draft of an accounting system for not-for-profit organisations. The system requires these organisations to use accrual accounting (with certain exceptions) and explains how to account for donations of cash and non-cash assets (including unrestricted, temporarily restricted, and permanently restricted donations), grants, income and expense recognition, depreciation, impairment recognition, and financial reporting.

Exposure draft already issued; final standard expected 2003:

• Accounting for Government Grants and Assistance
• Presentation of Financial Statements
• Earnings per Share
• Segment Reporting
• Foreign Currency Translation
• Discontinuing Operations

Both exposure draft and final standard expected 2003:

• Business Combinations
• Consolidated Financial Statements
• Impairment
• Disclosure by Banks and Other Financial Institutions
• Disclosure and Presentation of Financial Instruments
• Agriculture
• Oil and Gas
• Other Extractive Industries (mining, etc.)
• Income Taxes
• Liquidation Accounting

In addition to the above accounting standards projects, MOF is also formulating an accounting system for small-sized enterprises.

• Prepared Remarks (PDF 25k)
• PowerPoint Presentation (PDF 46k)

• Presentation of Financial Statements.
• Earnings Per Share.
• Segment Reporting.
• Accounting for Government Grants.
• Foreign Currency Translation.
• Discontinuing Operations.

In October 2002, Deloitte Touche Tohmatsu published a 32-page booklet that identifies and explains 108 differences between International Financial Reporting Standards and Chinese GAAP. The booklet, titled GAAP Differences in Your Pocket: IAS and GAAP in the People's Republic of China, also includes a comprehensive foreword that provides background on the development of Chinese GAAP and the progress that has been made toward convergence with international standards. At the top of this web page is a link to download the booklet.

• Details, reason, and effect of any changes in accounting policies or accounting estimates and corrections of accounting errors.
• Details, reason, and effect of significant changes in the scope of consolidation.
• If the auditor's report is modified in any way from the standard report, explanatory comments on issues.

Rule No. 15 requires more extensive disclosure than both Rule No. 3 and the Chinese Accounting Standard on Interim Financial Reporting. It requires the listed enterprise to disclose basic information and background of the reporting group; description of accounting policies, accounting estimates, and method of preparation of the consolidated financial statements; taxation; subsidiaries and jointly controlled companies; major line items in the consolidated financial statements; supplementary notes to the financial statements of the company itself; the effect of the non-adjustment of subsidiaries' different accounting policies in preparation of the consolidated financial statements; related party relationships and transactions; contingencies; commitments; events occurring after the balance sheet date; and other important events such as non-monetary transactions, debt restructuring, and disposal and sale of assets.

In June 2002, as a result of recent scandals involving the Chinese accounting profession, the Chinese Institute of Certified Public Accountants (CICPA) issued new guidance on professional ethics as a supplement to the General Standard on Profession Ethics. The guidance stresses the importance of a CPA's independence and also has extensive discussion on changes in a professional appointment, service fee charged to clients, practice promotion, and confidentiality.

All four pronouncements are generally consistent with the principles of the equivalent International Auditing Standards.

In March 2002, the China Securities Regulatory Commission reversed its decision of 30 December 2001 (reported in the January 2001 edition of this newsletter) that, for all initial and secondary public offerings of 'A Shares' (shares that can be purchased by Chinese investors), supplementary IAS financial statements must be published that must be audited by an international accounting firm. The revised rules require supplementary audits only if a company is issuing 300 million or more shares (which, in recent years, has only happened two or three times a year). Further, in those cases the supplementary audits would be conducted by licensed Chinese accounting firms, not international firms, and only a reconciliation of net income to IAS would be required, not complete supplementary IAS financial statements.

• Interim Financial Reporting (applicable to all listed enterprises).
• Fixed Assets (applicable to listed enterprises and other joint stock limited enterprises).
• Inventories (applicable to listed enterprises and other joint stock limited enterprises).

Additionally, in December the MOF announced that with effect from 1 January 2002, foreign investment enterprises will be required to adopt the new comprehensive Accounting System for Business Enterprises which, when it was initially released in January 2001, was only applicable to Joint Stock Limited Enterprises. The System will replace the existing Accounting System for Foreign Investment Enterprises.

Also in December 2001, the MOF announced that a new Accounting System for Financial Institutions will apply to all listed financial institutions (including banks, insurance companies, and brokerages) with effect from 1 January 2002. The new system had previously been exposed for public comment. Unlisted financial institutions will continue to follow the old regulations.

In November 2001, MOF issued an exposure draft on Segment Reporting that is based on and similar to IAS 14, Segment Reporting. It would require financial data on the basis of both industry and geographical segments, with more information reported for primary segments (industry or geographic, whichever reflects the enterprise's most significant risks) than for secondary segments.

The new interim reporting standard requires complete financial statements in interim reports, as follows:

• Balance sheet: end of the interim period and end of the prior financial year.
• Income statement: current period, cumulative for the current year, and comparable periods of the prior year.
• Cash flow statement: cumulative for the current year and the comparable period of the prior year.

Under the new standard on inventories, specific identification, FIFO, weighted average, moving average, and LIFO would all be allowed for determining ending inventories and cost of sales. Specific identification must be used for unique items. At the end of the period, inventories must be stated at the lower of cost and net realisable value.

The standard on fixed assets is similar to IAS 16, Property, Plant and Equipment, except that it does not address asset revaluations. The principles in the Chinese standard for recognising and measuring impairment are similar to those in IAS 38, Intangible Assets. It permits major overhaul costs to be deferred and amortised, which is different from IAS 16.

In December 2001, the China Securities Regulatory Commission announced that it is requiring that any enterprise making an initial public offering or a secondary offering of A-Shares (shares that can be purchased by Chinese investors) must publish financial statements in conformity with International Accounting Standards, in addition to Chinese GAAP statements, at the time of the public offering. Companies that issue B-Shares (shares that trade in US dollars and that can be purchased by foreign investors) are already required to publish the IAS financial statements both at the time of an IPO and thereafter.

Also, in December, the Ministry of Finance issued a public announcement that if any 'gain' arises as a result of a related party transaction that exceeds the gain that would be measured on the basis of the fair value of the goods or services that were sold, the excess must be credited directly to equity. This rule applies to listed companies.

From the World Trade Organization website: Information about some of the Commitments Undertaken by China for its entry into WTO.

• a new comprehensive Accounting System for Business Enterprises;
• three new standards (intangible assets, borrowing costs, and leases); and
• five revised standards (debt restructuring, non-monetary transactions, accounting policies, cash flow statements, and investments - only the first two of those are significant revisions).

All of the new and revised pronouncements became effective from 1 January 2001.

New Accounting System for Business Enterprises (ASBE)

The new Accounting System for Business Enterprises (ASBE) brings accounting practice in the PRC more closely into line with international best practice (see table below), including a requirement to recognise impairment losses on receivables, inventories, investments, fixed assets, intangibles, and other assets. MOF intends the new system to apply to all medium and large sized enterprises, other than banks and insurance companies, but it will apply initially only to listed companies. Adoption by other enterprises is encouraged.

CHINA'S NEW ACCOUNTING SYSTEM FOR BUSINESS ENTERPRISES
Defines fundamental principles including going concern, accounting period, substance over form, consistency, timeliness, understandability, accrual basis, matching, impairment recognition, prudence, materiality, and measurement currency vs. presentation currency
Defines the basic elements of financial statements: assets, liabilities, owners' equity, revenues, expenses, and profits - definitions are similar to International Accounting Standards (IAS)
Specifies classifications within the asset, liability, and equity elements
Specifies recognition and measurement principles for a wide variety of assets and liabilities
Specifies revenue recognition principles for goods, services, royalties, and interest
Specifies expense recognition principles for bad debts, cost of good sold, depreciation, major overhauls, and impairment of assets
Requires that expenses be classified into operating, administrative, and financing and that profit be classified between operating profit, investment income, subsidy income, and several other non-operating income categories
Specifies accounting principles for non-monetary transactions, assets contributed by investors, accounting for income taxes, foreign currency transactions, changes in accounting policies, changes in estimates, corrections of errors, post-balance sheet events, contingencies, and related party transactions
Defines the content of a financial and accounting report (which financial statements are presented annually, half-yearly, quarterly, and monthly), minimum notes to the financial statements, and how soon reports should be published
Specifies principles for consolidated financial statements and accounting for investments in joint ventures
Requires a management discussion of financial condition similar to, but less detailed than, those in the United States the United Kingdom

Three New Standards

• Borrowing Costs. Borrowing costs on project-specific borrowings must be capitalised as part of the cost of acquiring or constructing a tangible fixed asset. All other borrowing costs are expensed as incurred.
• Intangible Assets. Under the new PRC standard, a separately purchased intangible asset is recorded based on the actual purchase price. However, costs of internally developing an intangible asset are regarded as research and development costs, and all R&D costs must be charged to expense. Regarding amortisation, if an intangible asset has no contractual or legal life, the amortisation period may not exceed 10 years.
• Leases. This new standard classifies a lease as a finance lease if it transfers to the lessee substantially all of the risks and rewards incident to ownership of the underlying asset. All other leases are classified as operating leases. A lessee will record an asset leased under a finance leases at the lower of the carrying amount of the asset in the books of the lessor and the present value of the minimum lease payments. The lessee will recognise the liability at the gross minimum lease payments. The difference between the asset and the liability recorded is an unrecognised finance charge, which will be deducted from the liability. A lessor will record a finance lease in the balance sheet as a receivable at an amount equal to the aggregate of the gross minimum lease payments and the unguaranteed residual value. The difference between the gross receivable and its present value is recorded as unearned finance income, which will be deducted from the related receivable.

Significantly Revised Standards

• Debt restructuring. The revisions result in more transactions being defined as debt restructurings but all gains on such transactions being reported directly in equity.
• Non-monetary transactions. The revised standard prohibits all gain recognition on non-monetary transactions except to the extent that boot is received, even on exchanges of dissimilar assets.

In February 2001, the State Council approved legislation that allows domestic investors with legal foreign exchange accounts to trade B shares, which were reserved exclusively for foreign investors since their inception in 1992. Chinese investors had been restricted to the A-share markets. A shares are traded in yuan while B shares are traded in US dollars in Shanghai and Hong Kong dollars in Shenzhen.

In addition, MOF is now in the process of combining the existing industrial based standards, regulations, and guidance - other than those for enterprises operating in special industries such as banking and insurance - into a comprehensive set of standards applicable to large and medium size enterprises.

For year 2000 financial reports of listed companies, the China Securities Regulatory Commission (CSRC) has adopted certain new disclosure requirements including information about:

• Whether the listed company's management, assets, and finance and treasury functions are independent from its major shareholders
• Profit distribution plans for the current year and in the next year

Also, CSRC is requiring that annual reports be posted on designated websites (Chinese language):

• Companies listed on the Shanghai Stock Exchange: http://www.sse.com.cn
• Companies listed on the Shenzhen Stock Exchange: http://www.cninfo.com.cn

CSRC and the two stock exchanges have also adopted new corporate governance rules that require listed companies to disclose detailed related party transaction information relating to intangible assets.

In 1993, with funding from the World Bank, the Ministry of Finance (MOF) of China engaged Deloitte Touche Tohmatsu as consultants on a three-year project to develop some 30 accounting standards appropriate to China's developing socialist market economy aimed at bringing accounting and financial reporting practices in China more into line with those used internationally. Exposure drafts on the 30 standards were published, and to date 10 have been issued as final standards. The others are currently being revised.

Deloitte has been engaged as consultants in the second phase of the project, which began earlier this year. The goal is to begin work in 17 additional areas.