What You Need to Know about Accounting & Auditing in China

- Hot Topics

Stephen Austin, CPA, MBAFirm Managing Partner

Swenson Advisors, LLPSan Diego, California

Accounting DayMay 12, 2008

A Regional Full Service Accounting Firm with Global Outreach

www.SwensonAdvisors.com

Overview of Chinese Accounting Standards

Accounting System for Business Enterprises (ASBE)

Chinese Accounting Standards (CAS)

Ministry of Finance (MOF)

Hong Kong

PRC

Accounting Systems for Business Enterprises 13 Chapters

Chapter 1 General Provisions

Chapter 2 Assets

Chapter 3 Liabilities

Chapter 4 Owners’ Equity

Chapter 5 Revenue

Chapter 6 Costs and Expenses

Chapter 7 Profit and Profit Distribution

Chapter 8 Non-monetary Transactions

Chapter 9 Foreign Currency Transactions

Chapter 10 Accounting Adjustments

Chapter 11 Contingencies

Chapter 12 Related Party Relationships and Transactions

Chapter 13 Financial Reports

Chinese Accounting StandardsEffective July 1, 1993

“BASIC STANDARD”

Plus 16 CAS

Disclosures of Related Party Relationships and Transactions

Cash Flow Statements

Events Occurring After the Balance Sheet Date

Debt Restructuring

Revenue

Investments

Construction Contacts

Changes in Accounting Policies and Accounting Estimates and Corrections of Accounting Errors

Chinese Accounting Standards(continued)

“BASIC STANDARD”

Plus 16 CAS (continued)

Non-monetary Transactions

Contingencies

Intangible Assets

Borrowing Costs

Leases

Interim Financial Reporting

Inventories

Fixed Assets

Future Accounting Standards

Segment Reporting;

Foreign Currency Translations;

Presentation of Financial Statements;

Earnings Per Share;

Accounting for Government Grants;

Discontinuing Operations;

Business Combinations;

Consolidated and Separate Financial Statements;

Impairment of Assets;

Disclosure by Banks and Similar Financial Institutions;

Financial Instruments: Disclosure and Presentation;

Agriculture;

Oil and Gas; Other Extractive Industries (mining, etc).

Key Considerations

Chinese Accounting (traditionally) Designed for State Government Decision Making

National Macro Economic Control

Materially Principles e.g. Related Party Disclosures, Chapter 3

Related Portions Exclude:

Financial Sources

Public Utilities

Government Department and Agencies

Other CAS Observations

Debt Restructuring

Revenue Recognition

Non-Monetary Transactions

Intangible Assets

Inventory

CAS vs IFRS

Key Considerations

What are IFRS’s?

A Single Set of Globally-Accepted, High Quality Accounting Standards

Developed by the Internationally Accounting Standards Board (IASB)

Successor of the International Accounting Standards Committee (developed IAS’s)

Used in Approximately 105 Countries and Growing

Standards are Principles Based and Less Extensive

Lack Guidance (including Industry Specific Guidance)

Frequently, the Application of IFRS Requires Judgment)

IASB Structure

A Single Set of Globally-Accepted, High Quality Accounting Standards

Developed by the Internationally Accounting Standards Board (IASB)

Successor of the International Accounting Standards Committee (developed IAS’s)

Used in Approximately 105 Countries and Growing

Standards are Principles Based and Less Extensive

Lack Guidance (including Industry Specific Guidance)

Frequently, the Application of IFRS Requires Judgment)

M&A Environment in China

1.3 Billion People

200,000,000 “Other Citizens”

10%+ Growth Rate

Key Manufacturing Hub of the World

Past 15 Years Largest Recipient of Foreign Private Investors and Development Nations

Foreign Invest Independent Guidance Catalog (10/31/07)

EJV’s

and

CJV’s

WFOE’s

Chinese State Government Legislation

Effecting M&A in China

Ethics and CorruptionIn Asia Today

“Ethics has Left the Building”

The Lack of Ethical Behavior is

Still Rampant

Setting the “Tone at the Top”

Board of Directors

Audit Committee’s

Chief Executive Officer

Senior Management

William Wilberforce:Authentic Leadership

He Changed the World

200th Anniversary Celebration

Outstanding Film in 2007

Metaxes, E, CC: Amazing Grace. New York, NY: HarperCollins Publishers, 2007.

SOX

(Sin Management)

USA - Style

Post Enron Era

US Accounting Fraud

577 Separate Cases

693 Fraud Convictions

1,000+ Corporate Executives

1,300 Individuals

China Today

41,000 Executives Prosecuted in 2007

Multiple Sets of Book

FCPA – Still the World Standard

Audit Styles

Other

Setting Up Representative Offices in China (RO’s)

1. Acquire Preliminary Approval as Needed

2. Register with the Administration of Industry an Commerce for Registration Certificate

3. Apply for Carving the Official Chops

4. Apply at the Bureau of Quality and Technology Supervision

5. Apply for Local Tax Registration

6. Apply for State Tax Registration

7. Apply for Approval at People’s Bank of China

8. Open Bank Account

9. Enter into Employment Contracts

Swenson Hong Kong Office Expansion

Certificate of Incorporation

Swenson Hong Kong Office Expansion

Calvin, Simon and Steve in the

reception area of Swenson’s Hong

Kong office

Integra InternationalTrade Mission Highlights

Integra InternationalTrade Mission Highlights

Integra InternationalTrade Mission Highlights

Integra InternationalTrade Mission Highlights

Integra InternationalTrade Mission Highlights

Integra InternationalTrade Mission Highlights

CONTACT ME AT:

steve.austin@swensonadvisors.com

“Rise of the New Ethics Class”(Visit our Booth to Receive your Copy)

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