General Overview
The Ministry of Finance of the People's Republic of China (MoF) clearly supports international accounting harmonization and is working to achieve convergence of Chinese Accounting Standards (CASs) with International Financial Reporting Standards (IFRSs) by giving due consideration to IFRSs in the process of drafting each CAS. The MoF generally looks to IFRSs in its decision on the accounting principles that are included in the CASs, but sometimes modifications are required due to national laws and the practical issues associated with effective implementation by Chinese enterprises. On February 15, 2006, the MoF formally announced the issuance of the long awaited Accounting Standards for Business Enterprises (ASBEs) which consist of a new Basic Standard and 38 Specific ASBEs. The ASBEs cover nearly all of the topics under the current IFRSs and become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply the ASBEs. The ASBEs replace the existing CASs and an earlier version of ASBEs. 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 ASBEs do not simply expand the disclosure requirements. They make fundamental changes to current Generally Accepted Accounting Practice in Chinese Mainland (PRC GAAP). Accordingly, they may have a significant impact on the result and/or net asset of enterprises and on the presentation of financial statements. Although the ASBEs are substantially in line with IFRSs, there are still some differences. Some of the key differences are in the areas of accounting for property, plant and equipment, jointly controlled entities, impairment borrowing costs, related parties, biological assets, business combinations, and other. (Deloitte China 2006, pp. 1- 4; Deloitte IAS Plus website)
Accounting requirements in the People's Republic of China (PRC) come from a number of sources, most notably: (1) Accounting Law of the People's Republic of China; (2) Financial Accounting and Reporting Rules for Enterprises (FARR); (3) Chinese Accounting Standards for Business Enterprises (CASs); (4) Accounting System for Business Enterprises (the ASBE); (5) Accounting System for Small Business Enterprises (ASSBE); (6) Accounting System for Financial Institutions (ASFI); (7) Accounting Guidelines for enterprises within specialized industries; (8) Ad hoc accounting pronouncements (usually titled as Caikuai). (Deloitte IAS Plus website)
The Accounting Law of the PRC, which was enacted by the National People's Congress in 1985 and was last revised as of July 1, 2000, is the highest authority on accounting in China. It sets out general principles of accounting for all enterprises, including a definition of the nature and role of accounting and basic principles. It empowers the PRC MoF to administer accounting affairs and to establish uniform accounting regulations and systems. Such regulations and systems have the force of law. Development since the enactment of the Accounting Law have shifted from traditional accounting practice, which, being comparatively more rule-oriented, was concerned with measuring progress by reference to the state plan and with monitoring the legitimacy of the application of state funds. (Deloitte IAS Plus website)
In 2000, the State Council issued Financial Accounting and Reporting Rules for Enterprises (FARR). FARR focus on such financial accounting and reporting matters as bookkeeping, preparation of financial statements, and reporting practices. It applies to all enterprises other than very small ones that do not raise funds externally. (Deloitte IAS Plus website)
In the 1980s, the MoF issued the first set of accounting regulation, which was formulated by reference to international accounting practice, for joint ventures in China. In 1992, due to the rapid development of the Chinese securities markets, the Accounting System for Experimental Joint Stock Limited Enterprises, which was subsequently replaced by the Accounting System for Joint Stock Limited Enterprises (JSLE), was promulgated by the MoF in order to standardize accounting practice and disclosures by listed companies. In the same year, the MoF promulgated the Accounting System for Foreign Investment Enterprises (FIE) and the Chart of Accounts and Accounting Statements for Foreign Investment Industrial Enterprises, which set outs a prescribed format for the financial statements of enterprises with foreign investment. These accounting systems were all subsequently replaced by the Accounting System for Business Enterprises (ASBE). (Deloitte IAS Plus website)
In November 1992, the first accounting standard, the Accounting Standard for Business Enterprises (the Basic Standard), which is regarded as the conceptual framework of China's accounting, was promulgated by the MoF and became operative from July 1, 1993. Financial Rules for Business Enterprises (the 'Basic Financial Rules') which prescribe detail accounting practice were promulgated in conjunction with the Basic Standard. Both were applicable to all enterprises established within China. In addition to the Basic Standard and the Basic Financial Rules, 13 sets of industry-specific accounting rules (manufacturing, agriculture, transportation (general), transportation (railway), transportation (airline), communications, financial institutions, insurance, tourism and catering, foreign economic cooperation, merchandising, construction and real estate development) and 10 sets of industry-specific financial rules were also promulgated by the MoF. These industry-specific accounting rules were subsequently replaced by the industry-specific accounting guidelines. (Deloitte IAS Plus website)
The issuance of these accounting pronouncements represented a milestone for Chinese accounting, because they introduced on a broader scope new accounting concepts and essential elements of financial statements that were in many respects based on international practice. However, these pronouncements were still found to have essential differences with international practice such as the restrictions on making provisions for doubtful debts and obsolete inventories, limited recognition of impairments of other assets, and the limited disclosure of financial information for the users to understand the results and financial position of the reporting enterprise. Also, many important issues for which international accounting standards existed simply were not addressed by Chinese standards. Accordingly, the MOF embarked on an even more focus effort for the development of China's new accounting requirements. (Deloitte IAS Plus website)
In 1993, with funding from the World Bank, the MoF engaged Deloitte Touche Tohmatsu as consultants to develop a body of CASs broadly in line with accounting and financial reporting practice used internationally. Up to 2001, 16 final standards have been issued and became effective. Since then, the MoF has not issued any standards. That is partly due to the rapidly changing environment of IFRSs. To cover some urgent or practical issues, the MoF has issued other pronouncements, including guidelines for specific industries and ad hoc pronouncements, known as Caikuai, from time to time. As of 2005, the MoF has expressed its intention to publish up to 40 accounting standards, which will be highly comparable to the equivalent IFRSs, within the coming two years. (Deloitte IAS Plus website)
Circumstances where differences arise between CASs and IFRSs include (a) areas where IFRSs allow choices but CASs do not (for instance, property, plant, and equipment may be stated at cost or at revalued amounts under IFRS whereas CAS generally require cost basis); (b) areas such as hyperinflation where the MoF has not developed a CAS because of limited application in China; (c) areas where the MoF is currently developing new standards. The MoF has an ongoing program to issue standards that deal with areas specifically addressed by IFRSs; (d) in the light of China's evolving market economy and developing accounting profession and the practical circumstances of Chinese enterprises, the MoF has not adopted certain accounting conventions applied in the IFRSs, notably the pervasive use of fair value. The MoF's approach is to establish a set of CASs suitable to China's circumstances, while striving toward convergence with IFRSs in an orderly manner. (Deloitte IAS Plus website)
Apart from issuing new CASs, the MoF issued in December 2000 a new comprehensive Accounting System for Business Enterprises (ASBE). The System is based, in part, on the experience of MoF in implementing the former Accounting System for JSLE and, in part, on the existing individual CAS. The ASBE replaced the Accounting System for JSLE from January 1, 2001 and Accounting Regulations for FIE from January 1, 2002. As of March 17, 2003, the MoF extended the applicability of the ASBE to all enterprises established on or after January 1, 2003 other than small enterprises (defined small enterprises are allowed to adopt the Accounting System for Small Business Enterprises (ASSBE) starting from January 1, 2005) and financial institutions. The MoF plans to ultimately require all medium-sized and large enterprises (other than financial enterprises) to adopt the new ASBE, and this plan is being implemented. When fully implemented, the ASBE will replace the numerous arcane and inconsistent industry accounting regulations that have been promulgated over the years, enabling the financial statements of different types of enterprises to become more comparable. (Deloitte IAS Plus website)
Although the scope of applicability of individual CASs differ (and only six are applicable to all enterprises), many of the issues addressed in individual CASs are also included in the ASBE, of which the scope of application is wider. The ASBE is consistent with those standards, though there is generally more detail in the individual standards and supporting guidance than there is in the ASBE. (Deloitte IAS Plus website)
This ASSBE was issued in April 2004 and is effective from January 1, 2005 onwards. Qualified small enterprises are allowed to choose to adopt the ASSBE or the ASBE. If a parent adopts the ASBE, its subsidiaries must also adopt the ASBE even if they qualify as a small enterprise. If a small enterprise adopts the ASSBE but its size subsequently changes so that it no longer qualifies as a small enterprise for three years that enterprise should change to adopt the ASBE. In October 2004, the MoF issued a pronouncement that provides the transitional arrangements for a small enterprise that chooses to adopt the ASSBE. A small enterprise is one: (1) that does not raise funds from the public (that is, has not issued any shares or debt securities to the public); (2) 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; (3) that is not a sole proprietorship or a partnership; and (4) that is not a financial institution. The ASSBE provides a number of simplifications or exemptions from the requirements of the ASBE. (Deloitte IAS Plus website)
Early in 2002, MoF adopted a new separate Accounting System for Financial Institutions (the ASFI), which was required to be applied, starting January 1, 2002 by all listed banks, insurance companies, brokerages, leasing companies, and finance companies. Starting from January 1, 2004, unlisted brokerages have also been required to adopt the ASFI. Earlier adoption is encouraged. Unlisted financial institutions that are joint stock limited enterprises are also encouraged to follow the ASFI. The ASFI is similar to the one for general business enterprises but, in addition, includes principles specific to financial institutions. In addition to the ASFI, the MoF has also issued specific accounting guideline for trust activities which is effective from January 1, 2005 onwards. Accounting Guideline for Trust Activities is applicable to all parties engaged in trust activities (include the trustor, trustee and beneficiary) and the implementation of trust arrangements. (Deloitte IAS Plus website)
The Institute of Certified Public Accountants (CICPA) is a member of the International federation of Accountants (IFAC). (IFAC website)
The Principles
IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 38 First-time Adoption of ASBEs is applicable to first-time adopters of the ASBEs issued in 2006. The standard describes the transactions and events that require adjustments when an enterprise adopts the ASBEs for the first time to prepare its financial statements which shall include at least one year of comparative information prepared under the ASBEs. (Deloitte IAS Plus website; Deloitte China 2006, p. 47)
According to Deloitte, the objective of IFRS 1 (i.e. to prescribe the accounting by an enterprise that adopts IFRSs for the first time) is the same as ASBE 38. Similar to ASBE 38, IFRS 1 contains the transactions and events that require adjustments when an enterprise adopts IFRSs for the first time to prepare its financial statements. (Deloitte China 2006, p. 47)
There is insufficient information available as to compliance of CASs with IFRS 1.
IFRS 2: Share-based Payment (effective 2005) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 11 Share-based Payment requires an enterprise to recognize share-based payment transactions for services provided by employees and other Parties. IFRS 2 requires an entity to recognize share-based payment transactions (in which the entity receives goods or services) in its financial statements, including transactions with employees or other parties. ASBE 11 only covers the accounting for share-based payment transactions for which services are received. The issue of equity settled with cash alternatives is not addressed in ASBE 11 as this type of share-based payment is very rare in China. As of 2006, PRC GAAP did not address the accounting for share-based payments. (Deloitte China 2006, pp. 21, 22; Deloitte IAS Plus website)
IFRS 3: Business Combinations (effective 2004) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 20 Business Combinations differs from CASs in effect as of 2006 in that: (1) it requires the use of the "pooling of interests method" for entities under common control; (2) goodwill/discount on acquisition (similar to the "equity investment differences/consolidation differences" under current PRC GAAP) is the difference between the cost of the acquisition and the acquirer's share in the fair values (i.e. rather than their carrying amounts under current PRC GAAP) of the identifiable assets and liabilities acquired; (3) requires an acquirer to allocate part of the cost of a business combination to the acquiree's contingent liabilities at fair value (provided their fair value can be measured reliably) at the acquisition date; (4) prohibits the amortization of goodwill; (5) discount on acquisition shall be credited to income immediately; and (6) introduces certain significant new disclosure requirements. (Deloitte China 2006, p. 27; Deloitte IAS Plus website)
ASBE 20 differs from IFRS 3 in that business combinations involving entities under common control are outside the scope of IFRS 3 but addressed in ASBE 20 and in that reverse acquisitions are covered in IFRS 3 but are not addressed in ASBE 20. (Deloitte China 2006, p. 28)
IFRS 4: Insurance Contracts (effective 2006) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 25 Direct Insurance Contracts is a new standard that prescribes the recognition, measurement and presentation requirements of direct insurance contracts issued by an insurer. ASBE 25 prescribes the accounting of insurance contracts and clarifies the definition of an insurance contract and introduces the concept of insurance risk. These areas are not dealt with under PRC GAAP in effect as of 2006. With respect to contracts which expose the insurer to both insurance risk and financial risk, the insurer is allowed to unbundle the contract into different components if the insurance risk component and the other risk component can be separately identified and are separately measurable; if the insurance risk component and the other risk component cannot be separately identified or are not separately measurable, the insurer shall account for the entire contract as a direct insurance contract. ASBE 25 requires an insurer to perform an adequacy test for the claims outstanding reserve, the life insurance reserve and the long-term medical insurance reserve, at least at each year end. (Deloitte China 2006, p. 33; Deloitte IAS Plus website)
IFRS 4 does not specify the recognition and measurement requirements with respect to assets, liabilities, income and expenses arising from insurance contracts. In practice, an insurer can continue to use its existing accounting practice. Under ASBE 25, there are specific requirements that apply to income, reserves and costs. With respect to unbundling, IFRS 4 adds additional guidance on the treatments for contracts with insurance risks and/or financial risks. (Deloitte China 2006, p. 34)
ASBE 26 Reinsurance Contracts is a new standard that prescribes the recognition, measurement and presentation requirements of reinsurance contracts issued by an insurance company or assumed by an insurer. It differs from both PRC GAAP and IFRS 4. IFRS 4 applies to insurance contracts including both direct insurance contracts issued by an insurer and reinsurance contracts issued by an insurer or assumed by the insurer/reinsurer. There is no separate standard dealing with reinsurance contracts under IFRSs. Nevertheless, the recognition and measurement requirements of ASBE 26 are generally consistent with the current market practice. Similar to ASBE 26, income/expense and assets/liabilities of reinsurance contracts are presented on a gross basis. IFRS 4 requires an impairment test for reinsurance assets. ASBE 8 requires an impairment test for reinsurance assets to be performed only when there is an impairment indication. (Deloitte China 2006, p. 36)
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005) |
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According to a 2006 Deloitte China report, at the time of the assessment, there was no ASBE equivalent dealing with the accounting and presentation of non-current assets held for sale and discontinued operations. ASBE 30 requires the disclosure of the post-tax profit of discontinued operations and an analysis of the amount, while ASBE 4 requires the disclosure of fixed assets to be disposed of (including the name, carrying amount and fair value of those fixed assets and the estimated disposal costs and expected time of disposal). (Deloitte China 2006, p. 49)
IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 27 Extraction of Petroleum and Natural Gas is a new standard that formalizes the current market practice for the petroleum and natural gas extraction industry. ASBE 27 covers the accounting treatment of the exploration for, exploitation and production of petroleum and natural gas while IFRS 6 applies to expenditure incurred for the exploration and evaluation of mineral resources (including petroleum and natural gas). (Deloitte China 2006, pp. 37, 38; Deloitte IAS Plus website)
IFRS 6 permits enterprises to continue to use their existing accounting policies for exploration and evaluation assets (either the cost or revaluation model), provided that such policies result in information that is relevant and reliable. At initial recognition, the costs of exploration and evaluation assets include expenditure on topographical, geological, geochemical and geophysical studies. ASBE 27 only allows the cost model and capitalisation of exploratory drilling costs. Costs other than exploratory drilling costs shall be expensed as incurred. Moreover, impairment testing is required only when facts and circumstances suggest the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. IAS 36 does not prevent the reversal of impairment losses. ASBE 27 requires an impairment test to be performed for mineral interests in unproved properties at least annually. For mineral interests in proved properties, impairment testing shall be performed when there is an impairment indication. Impairment losses are not reversed in future. (Deloitte China 2006, p. 38)
IFRS 7: Financial Instruments: Disclosures (effective 2007) |
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There is no publicly available information as to China's compliance with this principle.
IAS 1: Presentation of Financial Statements (effective 2007) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 30 Presentation of Financial Statements differs from People's Public of China (PRC) Generally Accepted Accounting Principles (GAAP) in effect as of August 2006 in the following respects. It adds the definition for "materiality" and the requirement to classify assets and liabilities as current and non-current assets, current and non-current liabilities. When a presentation based on liquidity provides information that is reliable and is more relevant for a financial institution, assets and liabilities may be presented in order of liquidity. This is not addressed under PRC GAAP. (Deloitte China 2006, p. 39; Deloitte IAS Plus website)
In addition, comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements. Current PRC GAAP only requires disclosure of comparative information on the primary statements and selected notes. In the consolidated income statement, profit attributable to minority interests and profit attributable to owners of the parent shall be presented separately after profit for the year. Profit attributable to minority interests is not presented as a deduction item (as income or an expense) before profit for the year in the income statement as required under current PRC GAAP. Instead of preparing a statement of profit appropriation, an enterprise shall prepare a statement of changes in equity and present minority interests separately. (Deloitte China 2006, p. 39)
Under ASBE 30, expenses are analyzed by function but IAS 1 allows an enterprise to present an analysis of expenses using a classification based on either the nature of expenses or their function, whichever provides information that is reliable and more relevant. (Deloitte China 2006, p. 40)
ASBE Basic Standard differs from PRC GAAP in effect as of August 2006 in the following respects: (1) it reaffirms the definitions of "assets" and "liabilities" which are the same as IFRSs; (2) it reaffirms the concept of "substance over form"; (3) accounting elements, including assets, liabilities, revenue and expenses shall only be recognized when the definition and the recognition conditions are satisfied; (4) it adds new definitions for "gains" and "losses" which are the same as IFRSs; (5) accounting elements are generally required to be measured at historical cost. If the accounting elements are measured at replacement cost, net realizable value, present value or fair value, the enterprise shall ensure such amounts are available for all the accounting elements concerned and can be determined reliably. (Deloitte China 2006, p. 7)
The ASBE specifies an enterprise shall exercise prudence in the recognition, measurement and reporting of transactions or events for accounting purposes. It shall not overstate assets or income, nor shall it understate liabilities or expenses. Under the IASB's Framework for the Preparation and Presentation of Financial Statements, prudence is only one of the qualitative characteristics of financial statements and the information contained in financial statements should also be neutral, that is, free from bias. (Deloitte China 2006, p. 8)
IAS 2: Inventories (effective 2005) |
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People's Republic of China (PRC) Standard Inventories was issued on November 9, 2001 and has been effective since January 1, 2002. The standard applies to all companies who follow Accounting System for Business Enterprises (ASBE) (starting 2003). According to Deloitte, under the standard on inventories, specific identification, first in first out (FIFO), weighted average, moving average, and last in first out (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 realizable value. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the PRC (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 1 Inventories differs from PRC GAAP in effect as of August 2006 in the following respects: (1) it prohibits the use of the LIFO formula to assign the cost of inventories; (2) the cost of inventories contributed by an investor, except where this value is clearly not fair, shall be determined according to the value stipulated in the investment contract or agreement; (3) ASBE 1 standardises the measurement principle for inventories and removes the exemption for commodity distribution enterprises under current PRC GAAP. There are no major differences between ASBE 1 and IAS 2. (Deloitte China 2006, pp. 7, 8; Deloitte IAS Plus website)
The International Accounting Standards Board (IASB) revised IAS 2 in December 2003. The revised standard will be effective for the periods commencing on January 1, 2005. (Deloitte IAS Plus website)
IAS 7: Cash Flow Statements (effective 1994) |
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People's Republic of China (PRC) Standard Cash Flow Statements was issued on March 20, 1998 (Rev. Jan. 2001) and has been effective since Jan. 1, 1998 (Rev. 1 Jan. 2001). The standard applies to all companies. According to Deloitte, under PRC requirements, both direct method and indirect method must be used. Interest paid must be classified as a financing activity. Classification of interest received depends on its nature. Cash flows relating to income taxes are always classified as an operating activity. (Deloitte 2002, p. 11; Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 31 Cash Flow Statements requires the use of the direct method, accompanied by a note showing the reconciliation of profit to net cash flow from operating activities using the indirect method. Under IAS 7, an enterprise is encouraged to use the direct method but may use the indirect method. In addition, ASBE 31 specifies the appropriate classification for interest received (cash inflow from investing activities) and paid (cash outflow from financing activities) and dividends received (cash inflow from investing activities) and paid (cash outflow from financing activities). Under IAS 7, these items are required to be classified as operating, investing or financing activities in a consistent manner. There are no major differences between ASBE 31 and IAS 7. (Deloitte China 2006, pp. 41, 42; Deloitte IAS Plus website)
International Accounting Standard (IAS) 7 Cash Flow Statements (revised 1992) is applicable for periods beginning on or after January 1, 1994. (Deloitte IAS Plus website)
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005) |
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People's Republic of China (PRC) Standard Changes in Accounting Policies and Estimates and Corrections of Accounting Errors was issued on June 25, 1998 (Rev. Jan. 2001) and has been effective since Jan. 1, 1999 (Rev. 1 Jan. 2001). The standard applies to all companies (starting 2001). According to a 2002 Deloitte assessment, under PRC GAAP "abnormal" items are presented separately in the cash flow statement. In addition, certain types of gains and losses must be disclosed as supplementary information. In case of non-mandated changes in accounting policy, prior financial statements must be restated unless impracticable. In case of change in depreciation method for existing assets, a change in accounting policy should be indicated and prior period financial statements must be restated. (Deloitte 2002, pp. 11-12; Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 28 Accounting Policies, Changes in Accounting Estimates and Correction of Errors introduces the term "prior period errors" and removes the concept of "significant accounting errors in prior periods". An enterprise shall correct material prior period errors by retrospective restatement. Changes in accounting policies shall be accounted for using retrospective application. There are no major differences between ASBE 28 and IAS 8. (Deloitte China 2006, pp. 39, 40; Deloitte IAS Plus website)
The International Accounting Standards Board (IASB) revised International Accounting Standard (IAS) 8 in December 2003. The revised standard will be effective for the periods commencing on January 1, 2005. (Deloitte IAS Plus website)
IAS 10: Events after the Reporting Period (effective 2005) |
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People's Republic of China (PRC) Standard Events Occurring After the Balance Sheet Date was issued on May 12, 1998 (Rev. 2003) and has been effective since Jan. 1, 1998 (Rev. 2003). The standard applies to all companies who follow Accounting System for Business Enterprises (ASBE) (starting 2003). (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, 29 Events after the Balance Sheet Date. There are no major differences between ASBE 29 and IAS 10. (Deloitte China 2006, pp. 39, 40; Deloitte IAS Plus website)
IAS 11: Construction Contracts (effective 1995) |
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People's Republic of China (PRC) Standard "Construction Contracts" was issued on 25 June 1998 and has been effective since January 1, 1999. The standard applies to listed companies. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 15 Construction
Contracts allows borrowing costs to be capitalized (in accordance with ASBE 17) and included as part of contract costs. Current PRC GAAP does not allow capitalization of borrowing costs as contract costs of construction contracts. ASBE 15 differs from IAS 11 in that IAS 11 allows direct costs incurred in securing a construction contract to be included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained. ASBE 15 requires such costs to be expensed as incurred. (Deloitte China 2006, pp. 23, 24; Deloitte IAS Plus website)
International Accounting Standard (IAS) 11 Construction Contracts is applicable for periods beginning on or after January 1, 1995. (Deloitte IAS Plus website)
IAS 12: Income Taxes (effective 2001) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 18 Income Taxes disallowed the tax payable method and adopted the balance sheet liability method to determine deferred tax of temporary differences. Under current PRC GAAP, both the liability method and the deferral method are allowed and deferred tax is recognized for timing differences. There are no key differences between ASBE 18 and IAS 12. (Deloitte IAS Plus website; Deloitte China 2006, p. 25)
IAS 12 Income Taxes is applicable for periods beginning on or after January 11998. (Deloitte IAS Plus website)
IAS 14: Segment Reporting (effective 1998) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 35 Segment Reporting requires one basis of segmentation to be primary and the other to be secondary, with considerably less information required to be disclosed for the secondary segment. PRC GAAP in effect as of 2006 requires the same amount of information to be reported for both business segments and geographical segments. (Deloitte IAS Plus website; Deloitte China 2006, p. 45)
Unless stipulated in other laws or regulations, ASBE 35 requires an enterprise which has different operations or operates in different geographical areas to provide segment information. IAS 14 only applies to the published financial statements of enterprises whose equity or debt securities are publicly traded and enterprises that are in the process of issuing equity or debt securities in public securities markets. Deloitte China 2006, p. 46)
IAS 14 Segment Reporting is applicable for periods beginning on or after July 1, 1998. (Deloitte IAS Plus website)
IAS 16: Property, Plant and Equipment (effective 2005) |
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People's Republic of China (PRC) Standard "Fixed Assets" was issued on November 9, 2001 and has been effective since January 1, 2002. The standard applies to all companies that follow Accounting System for Small Enterprises (ASBE) (starting 2003). AS of 2002, the standard on fixed assets was similar to International Accounting Standard (IAS) 16, Property, Plant and Equipment, except that it did not address asset revaluations. The principles in the Chinese standard for recognizing and measuring impairment were similar to those in IAS 38, Intangible Assets. It permitted major overhaul costs to be deferred and amortized, which is different from IAS 16. (Deloitte IAS Plus website)
Under PRC Generally Accepted Accounting Principles (GAAP), the use of historical cost is required. Property, plant, and equipment received as a capital contribution from owners are measured at an amount agreed by all investing parties. Exchanges of dissimilar fixed assets are measured at the carrying amount of the asset surrendered. No gain or loss is recognized. (Deloitte 2002, pp. 13-14)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 4 Fixed Assets (excluding investment properties under ASBE 3) differs from accounting requirements under PRC GAAP and from IAS 16. IAS 16 allows both the cost model and the revaluation model. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. ASBE 4 only allows the cost model. (Deloitte China 2006, p. 14; Deloitte IAS Plus website)
The International Accounting Standards Board (IASB) revised IAS 16 Property, Plant and Equipment Sheet Date in December 2003. The revised standard will be effective for the periods commencing on January 1, 2005. (Deloitte IAS Plus website)
IAS 17: Leases (effective 2005) |
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People's Republic of China (PRC) Standard Leases was issued on January 18, 2001 and has been effective since January 1, 2001. The standard applies to all companies. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 21 Leases differs from the existing accounting practices in China in the following respects. First, at the commencement of the lease term, a lessee shall recognize a finance lease asset in its balance sheet at an amount equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Under current PRC GAAP, a finance lease asset is recorded at the lower of the original carrying amount of the asset and the present value of the minimum lease payments. Secondly, if there is evidence that a sale and leaseback transaction resulting in an operating lease is established at fair value, the difference between the sales proceeds and the carrying amount of the asset shall be recognized as profit or loss in the current period. Otherwise, the difference between the sales proceeds and the carrying amount of the asset shall be deferred and amortized over the lease term as an adjustment to rental expenses. Under current PRC GAAP, the difference between the sales proceeds and the carrying amount of the asset shall always be deferred and amortized over the lease term. (Deloitte China 2006, p. 29; Deloitte IAS Plus website)
Under IAS 17, leasehold interest in land shall be classified as an operating lease unless it meets certain criteria and is accounted for as an investment property under the fair value model. Under ASBE 6, leasehold interests in land (i.e. land use rights in China) are accounted for as intangible assets except for land use rights that meet certain criteria and are accounted for as investment properties in accordance with ASBE 3. (Deloitte China 2006, p. 30)
The International Accounting Standards Board (IASB) revised International Accounting Standard (IAS) 17 Leases in December 2003. The revised standard will be effective for the periods commencing on January 1, 2005. (Deloitte IAS Plus website)
IAS 18: Revenue (effective 1995) |
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People's Republic of China (PRC) Standard "Revenue" was issued on June 20, 1998 and has been effective since January 1, 1999. The standard applies to listed companies. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 14 Revenue Clarifies revenue does not include inflows of economic benefits resulting from equity contributions from owners. Revenue is measured at the fair value of the consideration after considering the effect of discounting any deferred payments. Under current PRC GAAP, the effect of discounting is generally not considered. ASBE 14 introduced the following changes. Revenue shall generally be recognized according to the value stipulated in the contract or agreement, except where this value is clearly not fair. Further, ASBE 14 clarifies if a contract or an agreement comprises both the sale of goods and the rendering of services and these two components cannot be separately identified, or the components are separately identifiable but are not separately measurable, the entire contract or agreement shall be accounted for as a sale of goods. There are no key differences between ASBE 14 and equivalent IAS 18. (Deloitte China 2006, pp. 23, 24; Deloitte IAS Plus website)
IAS 19: Employee Benefits (effective 2006) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 9 Employee Benefits differ from IAS 19 in that IAS 19 requires the recognition of a defined benefit liability and an expense throughout the expected service period of the related employees. ASBE 9 does not address the accounting requirements for defined benefit plans. (Deloitte China 2006, p. 20; Deloitte IAS Plus website)
Under PRC GAAP in effect as of August 2006, (1) salaries, bonuses, allowances and subsidies, (2) staff welfare, (3) union running costs and employee education costs, (4) various social security contributions, (5) nonmonetary benefits, (6) housing funds and (7) other related expenses incurred in exchange for service rendered by employees, are within the scope of employee benefits. Under ASBE 9, compensation to employees for termination of the employment relationships is also within the scope of employee benefits. ASBE 9 requires an enterprise to recognize a liability in the period the services are provided at the amount of employee benefits payable for that service. Under PRC GAAP, a liability is only recognized for salaries, bonuses, allowances and subsidies, staff welfare, union running costs and employee education costs. Other employee benefits are expensed when they are paid. In addition, ASBE 9 requires a liability to be recognized for compensation to employees for termination of employment relationships when the enterprise has a formal plan and it cannot unilaterally withdraw from that plan. Under current PRC GAAP, such compensation is normally expensed when it is paid. (Deloitte China 2006, p. 19)
IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 16 Government Grants introduced the following changes: (1) the recognition principle of government grants has been changed from the cash basis to the accrual basis; (2) government grants, except for asset related grants set out below, are recognized as income when the enterprise can comply with the conditions (if any) and it is entitled to receive the grant; (3) government grants in the form of non-monetary assets shall be measured at fair value. (asset-related grants shall be presented as deferred income and recognized as income evenly over the useful life of the related asset. If fair value cannot be obtained, the asset shall be measured at nominal value and the nominal value is recognized directly as income for the current period; (4) under current PRC GAAP, the whole amount of the asset related grant shall be credited to the "capital reserve" upon completion of construction of the related asset. For government subsidies, they are recognized as income on a cash basis. (Deloitte China 2006, pp. 23, 24; Deloitte IAS Plus website)
ASBE 16 differs from IAS 20 in the following respects. First, IAS 20 allows either the presentation of asset-related grants as deferred income, and their recognition as income on a systematic and rational basis over the useful life of the asset, or the deduction of the grant from the carrying amount of the asset (i.e. recognition as income over the useful life of the depreciable asset by reducing the depreciation charge). ASBE 16 only allows the former method. Secondly, IAS 41 requires a conditional government grant related to a biological asset measured at its fair value less estimated point-of-sale costs to be recognized as income when the conditions attaching to the grant are met. An unconditional grant is recognized as income when it becomes receivable. ASBE 16 does not provide specific requirements on grants related to biological assets. (Deloitte China 2006, p. 26)
IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 19 Foreign Currency Translation Re-defines recording currency (i.e. equivalent to "functional currency" in IAS 21). Each enterprise shall determine its own recording currency. Selection of recording currency is based on the primary economic environment in which the enterprise operates. There are special rules for translating financial statements (presented in a foreign currency) of a foreign operation which is operated in hyperinflationary economy to the recording currency. Moreover, upon disposal of a foreign operation, the cumulative amount of exchange differences deferred in a separate component of equity relating to that foreign operation is recognized in profit or loss when the gain or loss on disposal is recognised. (Deloitte IAS Plus website; Deloitte China 2006, p. 27)
IAS 21 allows a reporting entity to present its financial statements in any currency. ASBE 19 is silent on this issue. However, all PRC enterprises are required to present financial statements in RMB according to PRC laws and regulations. (Deloitte China 2006, p. 28)
IAS 23: Borrowing Costs (effective 1995) |
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People's Republic of China (PRC) Standard "Borrowing Costs" was issued on January 18, 2001 and has been effective since January 1, 2001. The standard applies to all companies. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 17 Borrowing Costs differs from PRC requirements as of August 2006 in the following respects. First, ASBE 17 requires capitalization of borrowing costs for a broader scope of assets - including inventories and intangible assets, instead of being limited to fixed assets under current PRC GAAP. Secondly, general borrowing costs are now allowed to be capitalized. Under current PRC GAAP, only borrowing costs on specific borrowings can be capitalized. Finally, borrowing costs that can be capitalized are actual borrowing costs incurred on specific borrowings less any interest income earned from undrawn borrowings and income on the temporary investment of those borrowings. For funds that are borrowed generally, the amount to be capitalized shall be determined by applying a capitalization rate to the related expenditure on the asset. Under current PRC GAAP, only the amount determined by applying a capitalization rate of specific borrowings to cumulative expenditures is capitalized. In addition, temporary income earned from undrawn borrowings is not allowed to be deducted from the capitalized amount. (Deloitte IAS Plus website; Deloitte China 2006, p. 25)
ASBE 17 requires the capitalization approach when the capitalization criteria are satisfied. Under IAS 23, borrowing costs are either expensed as incurred or capitalized provided the capitalization criteria are met. Also, ASBE 17 does not deal with finance charges in respect of finance leases which are dealt with under ASBE 21. Whereas, under IAS 23, borrowing costs include finance charges in respect of finance leases. (Deloitte China 2006, p. 26)
IAS 24: Related Party Disclosures (effective 2005) |
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People's Republic of China (PRC) Standard Disclosure of Related Party Relationships and Transactions was issued on May 25, 1997 and has been effective since January 1, 1997. The standard applies to listed companies. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 36 Related Party Disclosures Expands the scope of related party as compared with the PRC GAAP requirements in effect as of August 2006. If two parties are subject to joint control or significant influence from the same party, they are regarded as related parties. Under PRC GAAP, they are not considered as related parties. Also, if the separate financial statement of the parent is presented together with its consolidated financial statements, information relating to related party relationship and related parties transactions of the parent shall also be disclosed. �� Disclosures that related party transactions were conducted at fair value are allowed only if the enterprise is able to provide supporting evidence. (Deloitte IAS Plus website; Deloitte China 2006, p. 45)
ASBE 36 acknowledges state-controlled entities are not regarded as related parties simply because they are state-controlled. However, state-controlled entities are not exempted under IAS 24. Moreover, two parties subject to joint control or significant influence from the same party are clearly defined as related parties under ASBE 36 but this is not specifically addressed in IAS 24. (Deloitte China 2006, p. 46)
IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 10 Enterprise Annuity Funddiffers both PRC requirements as of August 2006 and from IAS 26. IAS 26 applies to all retirement benefit plans and prescribes the accounting and reporting by defined contribution plans and defined benefit plans. ASBE 10 does not deal with the accounting by defined benefit plans because they are not allowed under the existing PRC rules. (Deloitte IAS Plus website; Deloitte China 2006, p. 22)
Under PRC GAAP, there is no specific requirement that deals with enterprise annuity funds. An enterprise annuity fund is a supplementary retirement insurance fund (set up in accordance with related laws as a defined contribution plan) which is formed from the amounts raised under an enterprise annuity fund plan and the investment and operation earnings of the fund. An enterprise annuity fund shall be regarded as an individual entity for accounting (i.e. recognition, measurement and presentation) purposes. Financial assets obtained by an enterprise annuity fund shall be measured at fair value with changes between the carrying amount and the fair value recognized in profit or loss. (Deloitte China 2006, p. 21)
IAS 27: Consolidated and Separate Financial Statements (effective 2005) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 33 Consolidated Financial Statements differs from current requirements of the PRC GAAP. Examples of the differences include the following. ASBE 33 requires a parent to prepare consolidated financial statements. Under current PRC GAAP, there are three types of enterprises that are required to prepare consolidated financial statements. Other enterprises may also choose to prepare consolidated financial statements voluntarily. All subsidiaries under the control of a parent shall be consolidated, while under current PRC GAAP, certain subsidiaries are exempted from consolidation. A set of consolidated financial statements shall include a consolidated statement of changes in equity. However, the consolidated statement of profit appropriation (under current PRC GAAP) is removed. Under ASBE 33, the equity method instead of proportionate consolidation shall be use to account for equity interests in jointly controlled entities. Current PRC GAAP requires the use of proportionate consolidation. (Deloitte IAS Plus website; Deloitte China 2006, p. 43)
ASBE 33 differs from IAS 27 in that under IAS 27, when the reporting dates of the parent and a subsidiary are different, the subsidiary prepares, for consolidation purposes, additional financial statements as of the same date as the financial statements of the parent unless it is impracticable to do so. In any case, the difference between the reporting date of the subsidiary and that of the parent shall be no more than three months. The length of the reporting periods and any difference in the reporting dates shall be the same from period to period. ASBE 33 requires the reporting periods of the parent and the subsidiaries to be the same. In addition, IAS 27 specifies that a venturer may choose the equity method or proportionate consolidation method to account for its interest in a jointly controlled entity. ASBE 33 only allows the use of the equity method. (Deloitte China 2006, p. 44)
ASBE 2 Long-term Equity Investments differs both from PRC GAAP in effect as of August 2006 and from IAS 27. ASBE 2 differs from IAS 27 in that IAS 27 requires subsidiaries, associates and jointly controlled entities to be accounted for in the separate financial statements of the parent either at cost or in accordance with IAS 39. ASBE 2 requires: (1) subsidiaries to be stated at cost; (2) associates and jointly controlled entities to be accounted for using the equity method. (Deloitte China 2006, p. 10)
IAS 28: Investments in Associates (effective 2005) |
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According to the assessment prepared by Deolitte & Touche in 2002, under PRC GAAP, goodwill implicit in an equity method investment is measured at the difference between the cost of the investment and the investor's share of the carrying amounts (book values) of net assets acquired. Amortization period of goodwill implicit in equity method investment is the investment period, if any stipulated in the investment contract. If none, amortize over not more than 10 years. Amortization period for negative goodwill implicit in equity method investment is the investment period stipulated in the investment contract. If none, amortize over not less than 10 years. (Deloitte 2002, p. 23)
There is no requirement to conform accounting policies for investor and associate (or investee), but accounting policy differences must be disclosed. Associate's reporting date must not be more than 3 months earlier or later than the investor's. While accounting standards do not require adjustment for any significant differences in policy or subsequent transactions or events, in practice such adjustments are often made. Investments in associates in the investor's separate financial statements must be accounted for with an equity method. (Deloitte 2002, pp. 24, 34)
The International Accounting Standards Board (IASB) revised International Accounting Standard (IAS) 28 Investment in Associates in December 2003. The revised standard will be effective for the periods commencing on January 1, 2005. (Deloitte IAS Plus website)
IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990) |
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According to a 2006 Deloitte China report, since China is not a hyperinflationary economy, there is no ASBE equivalent of IAS 29. However, ASBE 19 prescribes the translation requirements of financial statements of a foreign operation which is operating in a hyperinflationary economy. (Deloitte China 2006, p. 49)
IAS 31: Interests in Joint Ventures (effective 2005) |
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According to the assessment prepared by Deloitte & Touche in 2002, under PRC GAAP, proportionate consolidation method must be used for accounting for investments in joint ventures in which the investor has joint control. Investments in joint ventures in which the investor has significant influence but not joint control and investments in joint ventures in the venturer's separate financial statements are accounted for with an equity method. (Deloitte 2002, pp. 24, 25)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 2 Long-term Equity Investments differs both from PRC GAAP in effect as of August 2006 and from IAS 31. Under IAS 31, a venturer shall recognize its interest in a jointly controlled entity either using proportionate consolidation or the equity method. However, ASBE 2 only allows the equity method. Deloitte IAS Plus website; Deloitte China 2006, p. 10)
IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005) |
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Overall principle of issuer's classification of an instrument as debt or equity is not specifically addressed, but in practice classified according to legal form. Dividend payments are not deducted in measuring net profit or loss. Convertible debt instruments are classified as a liability. Effective interest method or straight line method are used for amortization of premium or discount on long-term debt payable. Costs of issuing shares is first deducted from any interest income earned on investment of subscription proceeds during the subscription on period. Then share premium is reduced. Any excess will be deferred and amortized. (Deloitte 2002, pp. 25-26)
IAS 33: Earnings per Share (effective 2005) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 34 Earnings per Share requires listed enterprises or enterprises in process of issuing shares and applying for a listing status to disclose the basic and diluted EPS amounts. In addition, if the number of shares increases as a result of a stock dividend, capitalization of surplus reserves or share split or decreases as a result of share consolidation, but there is no effect to the amount of owners' equity, EPS for all periods presented shall be re-calculated on the basis of the adjusted number of shares. As of August 2006, there was no specific accounting standard on EPS but enterprises listed on the PRC stock exchanges are required by the China Securities Regulatory Commission (CSRC) to present the EPS figures in the interim report and annual report in accordance with a simple formula provided by the CSRC rules. (Deloitte IAS Plus website; Deloitte China 2006, p. 45)
ASBE 34 differs form IAS 33 in that IAS 34 requires disclosure of the basic and diluted EPS amounts for profit or loss from continuing operations and those for discontinued operations. ASBE 34 only requires the calculation of EPS based on net profit or loss for the current period. (Deloitte China 2006, p. 45)
IAS 34: Interim Financial Reporting (effective 1999) |
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People's Republic of China (PRC) Standard Interim Reporting was issued on November 9, 2001 and has been effective since January 1, 2002. The standard applies to listed companies. The standard on Interim Reporting is based on and is similar to International Accounting Standard (IAS) 14, Segment Reporting. It requires 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. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, unlike IAS 34, ASBE 32 does not require a statement of changes in equity to be presented. IAS 34 allows the presentation of condensed income statement, condensed balance sheet, condensed statement of changes in equity and condensed cash flow statement. However, ASBE 32 requires the interim balance sheet, interim income statement and interim cash flow statements to be complete statements, i.e. the form and content shall conform to the annual financial statements.
There are no major differences between ASBE 32 Interim Financial Reporting
and previous PRC GAAP requirements. (Deloitte China 2006, pp. 41, 42; Deloitte IAS Plus website)
IAS 14 Segment Reporting is applicable for periods beginning on or after July 1, 1998. (Deloitte IAS Plus website)
IAS 36: Impairment of Assets (effective 2004) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 8 Impairment of Assets differs from IAS 36 in treatment of reversal of impairment losses: ASBE 8 prohibits the reversal of all impairment losses but IAS 36 only prohibits the reversal of impairment loss for goodwill. (Deloitte China 2006, p. 20; Deloitte IAS Plus website)
Unlike PRC GAAP as of August 2006, recoverable amount shall be estimated for individual assets. If it is not possible to estimate the recoverable amount of an individual asset, an enterprise shall determine the recoverable amount of the asset group to which the asset belongs. Once an asset group is identified, it shall not be changed arbitrarily. Under PRC GAAP, an impairment test is only required to be performed for individual assets and the concept of "asset group" is not addressed. ASBE 8 provides more guidance leading to stricter requirements for impairment testing and prohibits the reversal of all previously recognized impairment losses within the scope of ASBE 8. (Deloitte China 2006, p. 19)
IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999) |
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People's Republic of China (PRC) Standard Contingencies was issued on April 27, 2000 and has been effective since July 1, 2000. The standard applies to all companies. (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. According to Deloitte, ASBE 13 Contingencies contains guidance on how the recognition and measurement requirements of provisions apply to onerous contracts and restructuring. Under current PRC GAAP, these areas are not specifically addressed. Where the effect of the time value of money is material, a provision shall be estimated using the present value of the expected future cash outflows. There are no key differences with equivalent IAS 37. (Deloitte China 2006, pp. 23, 24; Deloitte IAS Plus website)
International Accounting Standard (IAS) 37 Provisions, Contingent Liabilities and Contingent Assets was issued in July 1998 and is applicable for periods beginning on or after July 1, 1999. (Deloitte IAS Plus website)
IAS 38: Intangible Assets (effective 2004) |
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People's Republic of China (PRC) Standard "Intangible Assets" was issued on January 18, 2001 and has been effective since January 1, 2001. The standard applies to Joint Stock Limited Enterprises (JSLE). Under the PRC standard on Intangible Assets, 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 amortization, if an intangible asset has no contractual or legal life, the amortization period may not exceed 10 years. (Deloitte IAS Plus website)
According to the assessment prepared by Deloitte & Touche in 2002, under PRC GAAP, mineral rights and expenditure to explore, develop, and extract minerals are included in the intangible assets standard. Pre-operating expenses are deferred until the entity begins operations and then are charged to expense. Interest is not imputed in measurement of the cost of a purchased intangible where payment is deferred beyond normal credit terms. Intangible asset received as a capital contribution from an owner is measured at an amount agreed by all investing parties, except measured at the investor's carrying amount when contributed at the time of an initial issue of shares. Intangible asset received in a non-monetary transaction is measured at carrying amount of asset surrendered. (Deloitte 2002, pp. 27, 28)
Land use rights are accounted for as a purchased intangible asset until the construction or development commences; then accounted for as fixed assets under construction or (by a developer) as property development costs. On completion, total costs are transferred to property, plant, and equipment or (by a developer) property held for sale. Revaluation of intangible assets is prohibited. (Deloitte 2002, pp. 28, 29)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 6 Intangible Assets differs from IAS 38 in that IAS 38 allows both the cost model and the revaluation model (where fair value can be determined by reference to a price quoted in an active market). ASBE 6 only allows the cost model. (Deloitte China 2006, p. 18; Deloitte IAS Plus website)
The International Accounting Standards Board (IASB) issued International Accounting Standard (IAS) 38 Intangible Assets in March 2004. The revised standard is applied to the accounting for intangible assets acquired in business combinations after March 31, 2004, and to all other intangible assets for annual periods beginning on or after March 31, 2004. (Deloitte IAS Plus website)
IAS 39: Financial Instruments: Recognition and Measurement (effective 2006) |
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On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. (Deloitte IAS Plus website)
According to Deloitte, ASBE 22 Recognition and Measurement of Financial Instruments is a comprehensive accounting standard which covers the recognition and measurement of financial instruments. It will potentially affect all enterprises, not only financial institutions. The current "Investments" standard only covers investments in debt and equity securities, whereas ASBE 22 deals with all financial instruments, including equity and debt securities, payables, receivables, derivatives, cash/bank deposits, convertible bonds and preference shares. The standard introduces several new categories of financial instruments, i.e. financial assets ( loans and receivables, held-to-maturity investments, financial assets measured at fair value through profit and loss, and available-for-sale investments), and financial liabilities (financial liabilities at fair value through profit or loss and other financial liabilities measured at amortized cost using the effective interest method) which may lead to financial instruments currently recognized being measured differently. ASBE 22 requires all financial instruments to be measured at fair value at initial recognition. All derivatives shall be measured at fair value. There are no major differences between ASBE 22 and IAS 39. (Deloitte China 2006, pp. 29, 30)
In addition to the risks and rewards test as required by current PRC GAAP, ASBE 23 Transfer of Financial Assets also covers the circumstances in which the enterprise has neither retained nor transferred substantially all of the risks and rewards of the asset. In such circumstances, derecognition is appropriate only if the enterprise does not control the asset. If the enterprise has retained control of the asset, then it continues to recognize the asset to the extent to which it has a continuing involvement in it. There are no major differences between ASBE 23 and IAS 39. (Deloitte China 2006, pp. 31, 32)
Under current PRC GAAP, there are no requirements for hedge accounting. Under ASBE 24 Hedging, there are three types of hedges: (1) fair value hedge; (2) cash flow hedge; and (3) hedge of a net investment in a foreign operation. However, hedge accounting is optional and to qualify for hedge accounting, an enterprise shall prove the effectiveness of the hedge at inception. There are no major differences between ASBE 24 and IAS 39. (Deloitte China 2006, pp. 31, 32)
ASBE 12 Debt Restructuring is consistent with IAS 39 in terms of accounting for debt restructuring. However, the principles of derecognition of debts are not covered in ASBE 12. ASBE 12 differs from PRC GAAP in that debt restructuring is now defined as an event in which a debtor is in financial difficulty and a creditor grants a concession to the debtor in accordance with a mutual agreement or a court judgment. Under current PRC GAAP, "debt restructuring" includes all arrangements that result in modifications of the terms of a debt obligation. Moreover, ASBE 12 requires the assets or equity interests received or surrendered by the debtor or the creditor to be measured at fair value. The resulting gains or losses shall be recognised in profit or loss. Under current PRC GAAP, fair value is not used and the resulting gain is credited to the "capital reserve". (Deloitte China 2006, pp. 21, 22)
IAS 40: Investment Property (effective 2005) |
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People's Republic of China (PRC) Standard Investments was issued on June 24, 1998 (Rev. Jan. 2001) and has been effective since Jan. 1, 1999 (Rev. 1 Jan. 2001). The standard applies to Joint Stock Limited Enterprises (JSLE). (Deloitte IAS Plus website)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 3 Investment Property differs from People's Public of China (PRC) Generally Accepted Accounting Principles (GAAP) in effect as of August 2006. Under ASBE 3, "Investment properties" is an additional line item to be presented separately in the balance sheet and, except as set out below, they are accounted for using the cost model in the same way as fixed assets. Under current PRC GAAP, investment properties are either accounted for as fixed assets (subject to depreciation) or other long-term assets (for property developers, and subject to amortization). If there is clear evidence that the fair value of an investment property can be reliably determinable on a continuing basis, the fair value model may be used. If the fair value model is used, no depreciation or amortization is provided. The difference between the fair value and the carrying amount is recognized directly in profit or loss. (Deloitte China 2006, p. 11; Deloitte IAS Plus website)
ASBE 3 Investment Property differs from IAS 40 in that in addition to those properties within the scope of ASBE 3, IAS 40 also includes land held for undetermined use and certain property interests under an operating lease provided that certain criteria are met. Also, IAS 40 requires that with certain specific exceptions, an enterprise shall adopt the same accounting policy for all its investment properties. ASBE 3 does not have the same requirement. Under IAS 40, an enterprise may classify land use rights held for rental purposes as an investment property provided the fair value model is adopted. ASBE 3 allows land use rights held for rental purposes to be classified as investment property using the cost model or the fair value model (provided the fair value can be reliably determinable on a continuing basis). (Deloitte China 2006, p. 12)
The International Accounting Standards Board (IASB) revised International Accounting Standard (IAS) 40 Investment Property in December 2003. The revised standard will be effective for the periods commencing on January 1, 2005. (Deloitte IAS Plus website)
IAS 41: Agriculture (effective 2003) |
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According to the assessment prepared by Delotte & Touche in 2002, under PRC GAAP, biological assets and agricultural produce are generally measured with historical cost method. Biological assets held for procreation or production are accounted for as fixed assets. (Deloitte 2002, p. 31)
On February 15, 2006, the Ministry of Finance of the People's Republic of China (MoF) issued Accounting Standards for Business Enterprises (ASBEs) which become mandatory for listed Chinese enterprises from January 1, 2007. Other Chinese enterprises are also encouraged to apply ASBEs. ASBEs replace the existing Chinese Accounting Standards (CASs) and an earlier version of ASBEs which differs from IFRSs. The applicability of the CASs and the older version of ASBEs is not changed except for those entities required or electing to adopt new ASBEs. ASBE 5 Biological Assets differs both from PRC GAAP as of August 2006 and IAS 41. Under ASBE 5, the cost model shall be used to measure biological assets unless there is evidence that the fair value of biological assets can be reliably obtainable on a continuing basis. Under IAS 41, the fair value model shall be adopted for all biological assets, unless the estimate of fair value is clearly unreliable. An enterprise is encouraged to provide quantified description of biological assets, distinguishing between consumable and bearer biological assets or between mature and immature biological assets. There is no "welfare biological asset" classification. (Deloitte China 2006, p. 16; Deloitte IAS Plus website)
ASBE 5 differs from PRC GAAP in that "Biological assets" became an additional line item to be presented separately in the balance sheet. Unless there is evidence that the fair value of biological assets can be reliably obtainable on a continuing basis, the cost model shall be used to measure biological assets. ASBE 5 formalizes the current practice and provides more guidance on how to account for different types of biological assets using the cost model. (Deloitte China 2006, p. 15)
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