General

Currently a series of accounting pronouncements form an important part of current PRC accounting requirements for enterprises. Generally accepted accounting principles (GAAP) in China source from law, the Ministry Of Finance (MOF), and the China Securities Regulatory Commission (CSRC).

Accounting Law of China

The Accounting Law of China was first enacted 1985 and was last revised as of 1 July 2000. It is the highest authority on accounting in China. It sets out general principles of accounting for all enterprises.
Financial Accounting and Reporting Rules for Enterprises
This rule is issued by the State Council issued in 2000. It sets out the rules and guidance on such matters as bookkeeping, preparation of financial statements, and reporting practices. It applies to all enterprises other than very small ones that do not raise capitals externally.

The Accounting Standards

China has issued 16 final accounting standards to harmonize its accounting practice with international practice. China will publish up to 40 accounting standards, which will be highly comparable to the equivalent IFRSs, within the coming two years.

Summary of China Accounting Standards

• Disclosure of Related Party Relationships and Transactions • Cash Flow Statements • Events Occurring After the Balance Sheet Date • Debt Restructuring • Revenue • Investments • Construction Contracts • Changes in Accounting Policies and Estimates and Corrections of Accounting

• Errors • Non-monetary Transactions • Contingencies • Intangible Assets • Borrowing Costs • Leases • Interim Reporting • Inventories • Fixed Assets

The Accounting System for Business Enterprises

Accounting System for Business Enterprises (the 'ASBE') was issued by the MOF in December 2000. The ASBE represents a new comprehensive accounting system which applies to all enterprises established on or after 1 January 2003 other than small enterprises (small enterprises are allowed to adopt the Accounting System for Small Business Enterprises( ASSBE) starting from 1 January 2005) and financial institutions (which applies to Accounting System for Financial Institutions). ABSE will eventually replace the inconsistent industry accounting regulations that have been promulgated over the years and form comparable basis for different types of enterprises reporting their financial statements.


As well, by introducing a broad asset impairment test and by adopting updated definitions of accounting elements similar to that of IFRSs, the ASBE moves Chinese accounting practice further in the direction of international standards.


The ASBE is consistent with the Accounting Standards and have wide applicability.


Accounting System for Small Business Enterprises

This Accounting System was issued in April 2004 and is effective from 1 January 2005. Defined small enterprises are allowed to adopt the Accounting System for Small Business Enterprises (ASSBE) or the ASBE .

Following are examples of the size test for a small enterprise:

A small enterprise is one:
•	that does not raise funds from the public;
•	whose operations are relatively small;
•	that is not a sole proprietorship or a partnership; and
•	that is not a financial institution.

   Following are examples of the size test for a small enterprise:

Type of enterprises	Number of Employees	Turnover (in RMB)	Total Assets (in RMB)
Industrial	Less than 300	Less than 30,000,000	Less than 40,000,000
Construction	Less than 600	Less than 30,000,000	Less than 40,000,000
Retail	Less than 100	Less than 10,000,000	Not applicable

The ASSBE provides a number of simplifications or exemptions from the requirements of the ASBE. The major differences from the ASBE are:
•	Simplified disclosure requirements.
•	Only an income statement and a balance sheet are required. If a cash flow statement is presented, only the direct method is required for presenting cash flows from operating activities.
•	Only three types of current assets (short-term investments, inventory and accounts receivable) need to be assessed for impairment losses.
•	Use the tax payable method to account for income taxes.
•	Other major difference in terms of accounting for borrowing cost, fixed assets under financial lease and long term investment.