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Accounting Standards in China

Chinese accounting standards

One of the most challenging tasks for foreign investors in China is to fully understand the financial statements prepared for their entities. The Chinese accounting standards (CAS, i.e., the Chinese generally accepted accounting principles) framework is based on two standards:

Multinational corporate groups would normally carry out reconciliations between the CAS and international financial reporting standards (IFRS) or US GAAP for the purpose of consolidation of financial statements on a group level.

The current ASBEs were released in 2006 and came into effect in January 2007. According to the IFRS Foundation, the 2006 ASBEs “substantially converged with IFRS”. By releasing a serial of amendments as of 2012, further convergence between the ASBEs and IFRS has been achieved. The ASSBEs entered into force on January 1, 2013, to provide unified standards for small-scale enterprises and enhance their internal control. The ASSBEs use the ASBEs as a reference but are more similar to tax laws in terms of their tax calculation methods, which significantly simplify the process of making adjustments between accounting standards and tax rules. Small-scale enterprises can choose to adopt either the ASBEs or ASSBEs.

Though the CAS and the IFRS are generally convergent with each other, they are still slightly different in some respects:

Mapping: converting Chinese financial reports

The problem of differing accounting standards is most visible when an overseas parent company requests financial information from its Chinese subsidiary. As the two companies are required by law to follow different standards, the information from the Chinese subsidiary needs to be ‘translated’ to fit into the overseas parent company’s books, in a procedure known as ‘mapping’. Larger multinationals tend to have specialized software for assisting the corporate group with this process, but as this software tends to be very expensive, SMEs often need to do their conversions manually.

There are two major points a company needs to be aware of when ‘mapping’ its books:

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