China may use international accounting rule for de facto control

PUBLISHED : Wednesday, 28 November, 2012, 2:34pm
UPDATED : Wednesday, 28 November, 2012, 2:59pm

China may require companies to consolidate the financial statements of businesses they control with stakes of less than 50 per cent, as the nation implements international standards.

Under revised rules issued by the Ministry of Finance, an investor would be judged to have de facto control of a company if it can exert influence on its activities or coordinate with other shareholders to control the firm with less than half of the voting rights. The ministry is seeking public feedback on a draft of the revisions.

China is adopting global standards after dozens of publicly traded companies disclosed auditor resignations or accounting irregularities last year, leading to the suspension or delisting of their shares.

The new rule is in accordance with IFRS 10, issued by the International Accounting Standards Board in May 2011, which takes effect in January 2013, the ministry said.

Separately, the draft rules also relax rules on which companies must consolidate the earnings of subsidiaries. Existing regulations require all companies to consolidate earnings.

The revised rules would only force companies that are state-owned, financial institutions, publicly traded or planning to sell shares or bonds to consolidate subsidiaries’ earnings, while others would be allowed to decide on their own.