Details of China's new IFRS-based accounting standards

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24 Apr 2006

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.
Accounting Standards for Business Enterprises
No. Title
Basic Standard
1 Inventories
2 Long-term equity investments
3 Investment properties
4 Fixed assets
5 Biological assets
6 Intangible assets
7 Exchange of non-monetary assets
8 Impairment of assets
9 Employee compensation
10 Enterprise annuity fund
11 Share-based payment
12 Debt restructurings
13 Contingencies
14 Revenue
15 Construction contracts
16 Government grants
17 Borrowing costs
18 Income taxes
19 Foreign currency translation
20 Business combinations
21 Leases
22 Recognition and measurement of financial instruments
23 Transfer of financial assets
24 Hedging
25 Direct insurance contracts
26 Re-insurance contracts
27 Extraction of petroleum and natural gas
28 Changes in accounting policies and estimates and correction of errors
29 Events occurring after the balance sheet date
30 Presentation of financial statements
31 Cash flow statements
32 Interim financial reporting
33 Consolidated financial statements
34 Earnings per share
35 Segment reporting
36 Related party disclosure
37 Presentation of financial instruments
38 First time adoption of Accounting Standards for Business Enterprises

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