The Chinese Accounting Standards: A Comparison between Chinese GAAP And IFRS
INTRODUCTION
In line with the opening of its economy to foreign investment in recent years, the Chinese authorities have developed an accounting framework to support its economic growth. The Chinese accounting framework is commonly referred to as the Chinese Accounting Standards (CAS) or the Chinese Generally Accepted Accounting Principles (or Chinese GAAP).
Although the Chinese Accounting Standards maintain a high level of integration with internationally accepted accounting standards, such as IFRS, foreign investors must understand a number of core differences that exists. This is of particular importance since all foreign-invested enterprises must meet monthly, quarterly and annual compliance requirements.
BACKGROUND TO THE CHINESE ACCOUNTING STANDARDS
In China, the Accounting Regulatory Department of the Ministry of Finance (MoF) is the authority responsible for setting out the country’s accounting standards. Since 1992 the Chinese Ministry of Finance has worked on the gradual implementation of the Chinese Generally Accepted Accounting Principles, or China GAAP, also known as the Chinese Accounting Standards.
DIFFERENCES BETWEEN CHINESE GAAP AND IFRS
Despite the substantial convergence of the Chinese Accounting Standards with IFRS, a number of notable differences with IFRS exists. Among others these differences include:
The Fixed Assets Valuation Method
The most notable difference between Chinese GAAP and IFRS is that in line with the Chinese Accounting Standards companies can only use the historical cost method to valuate fixed- and intangible assets, whereas IFRS allows the use of both the historical cost method and the possibility of re-evaluating the asset(s).
Since the historical cost method does not allow for the re-evaluation of assets, which means there is the possibility for impairment losses of certain long-term assets, such as property, plant and equipment, intangible assets, investments (other than financial assets) and investment property.
Fiscal Year
In line with the Chinese Accounting Standards, the fiscal year in China must start from January 1st and no exceptions are provided. On the other hand, according to IFRS the company’s fiscal year can start at any point throughout the year provided that it encompasses a period of 12 consecutive months.
After the end of the Chinese fiscal year all foreign-invested enterprises in China must complete the annual statutory requirements, including the year-end statutory audit, annual CIT filing and annual publication report. As a consequence of the fiscal year end date, the deadline for the above statutory requirements is May 31st of the subsequent year.
Click here to read the full report.
