Chinese GAAP

For chinese standard

As reference --

http://www.hartung.com.cn/erp_in_china/chinese_gaap/?n=8-37

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Chinese GAAP

Given the differences that exist between Chinese GAAP and International Accounting Standards (IAS), at the end of every month accounting departments in China typically get busy preparing the books:

One based on Chinese GAAP to fulfill the requirements of Chinese accounting standards and - for foreign companies, one in accordance with the standards of its head-offices home country.

The Chinese accounting standard defines three mandatory accounting reports, which are the basis to get the approval by the Chinese authority for the financial and ERP systems. The enterprises have to present financial reports such as balance sheets, profit & lost statements and cash flow reports and define accounting fundamentals such as asset, revenue, expense and profit.

Bridging the gap in GAAP might seem like mission impossible, but with a clear understanding of the issues involved and the right assistance by hartung:consult, our customers in China can ensure that their accounting statements satisfy all the necessary requirements.

Requirements of accounting records
All enterprises must maintain books or accounts for their business activities. At the end of each business year, an enterprise must submit its annual financial report to its shareholders' meeting for approval or ratification. The annual financial report, which must be prepared using PRC accounting rules, includes a balance sheet, profit and loss account, cash flow statement, and statement of profit appropriation, notes to the financial statements, supplementary statements and management's commentary on the entity's financial performance.

In accordance with the relevant laws and regulations, enterprises must have their financial statements audited and certified by a CPA at the end of each financial year, which is in China the calendar Year.

Safekeeping time for accounting files is classified as permanent and periodic. Periodic time covers periods of three years, five years, ten years, fifteen years, and twenty-five years.

Enterprises must use double-entry bookkeeping and record transactions using the accrual method of accounting. Enterprises carrying out accounting activities (such as preparing accounting vouchers, recording accounting books and managing accounting records) must comply with the provisions contained in the Accounting Law of the PRC, the Basic Standards in Accounting Practice and the Management of Accounting Records.

Enterprises must maintain their accounting records in RMB. If an enterprise's operating income and expenses are primarily denominated in currencies other than RMB, the enterprise may choose any one of the currencies as its book currency. However, the enterprise's financial statements must be translated into RMB.

Disclosure, reporting and filing requirementsAn enterprise must include the following items in its financial statements:

Balance sheet

Income statement

Cash flow statement

Statement of profit appropriation

Notes to the financial statements

Supplementary statements

Management's commentary on the entity's financial performance

Certain statements are prepared monthly, while others are prepared quarterly or on a semiannual or annual basis. The Accounting System for Business Enterprises regulates the contents of the financial reports, types and forms of the financial statements, and details of the notes to the financial statements.

An accounting year generally is the calendar year. A FIE does not adopt the same accounting year as its parent company if the parent company's accounting year does not end on 31 December.

Accounting standards
FIEs and joint stock companies must prepare their financial statements in accordance with PRC accounting standards and the Accounting System for Business Enterprises (accounting system). The MOF (Ministry of Finance) issues the accounting standards and accounting system, which apply to various industries and sectors.

In general, PRC accounting principles conform to IAS. In the last few years, the Chinese government has eliminated most of the differences between PRC accounting practices and IAS. In February 2006, the MOF announced the newest 38 accounting standards, to be enforced from 1 January 2007. These standards conform even more closely to IAS.

The basic accounting concepts include the characteristics of objectivity, relevance, comparability and reliability, which must be reflected in the accounting statements. In addition, the accounting principles of going concern, consistency, timeliness, accruals, prudence, matching, and substance over form and materiality must be applied in preparing financial statements.

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