Tax Reform

A cut-off year for H-share accounting

PUBLISHED : Thursday, 25 August, 1994, 12:00am
UPDATED : Thursday, 25 August, 1994, 12:00am

UNDERSTANDING the financial statements of H-share companies is no easy matter.

The reading process is time-consuming because result announcements can easily occupy a full page of newsprint. But more importantly, the true performance of a given company is usually masked by complicated accounting arrangements which are a product of China's unique economic and financial system.

As controversy over the accounting treatment of public welfare funds by mainland enterprises gradually settles, the companies have produced a new problem: how to evaluate results in the light of the new unified exchange regime and value-added tax introduced this year.

Of the 11 H-share companies listed in Hong Kong, only Guangzhou Shipyard and Tsingtao Brewery have announced interim figures.

For instance, a hasty comparison of Guangzhou Shipyard's turnover in the first half would give the mistaken conclusion that the shipbuilder posted a 91 per cent increase in sales from a year previously.

A comparison is difficult. In fact, the picture is distorted because Guangzhou Shipyard included in its figures for last year an already-obsolete sales tax, while this year's sales were deflated by excluding the newly launched value-added tax.

The issue was further complicated because the company's sales last year included a portion of foreign exchange income which was calculated at the official exchange rate. But for the first six months of this year, a unified rate was used.

Hopefully, 1994 will be a cut-off year for the financial statements of mainland companies because the basis for comparison will be the same in next year's interim and annual reports - assuming, of course, that the authorities do not change the ground rules, yet again.