Guangzhou Shipyard defends accounting

GUANGZHOU Shipyard says the inclusion of the public welfare fund in its profit attributable to shareholders is in line with international and Chinese accounting standards.

The company also said its earnings per share would be revised upwards to 36.11 fen from 34.26 after classifying the interest income earned from its issue of H shares last year as an exceptional item.

The interest revenues were initially consolidated as an extraordinary gain.

A controversy erupted last week when the shipbuilding firm announced its first full-year result, where profit attributable to shareholders included a public welfare fund of 11.12 million yuan (about HK$9.84 million).

The Hong Kong stock exchange had asked the company to clarify its accounting methods.

Some analysts questioned the accounting, saying the arrangement helped to boost the company's profit performance.

They charged that the fund should be excluded from profit attributable to shareholders because it was not distributable to shareholders.

However, Guangzhou Shipyard asserted that the public welfare fund constituted a part of shareholder equity.

According to the relevant accounting standards and financial regulations in China and the company's articles of association, Guangzhou Shipyard is required to transfer certain portion of its after-tax profit to the public welfare fund.

For the year ended December 31, the company transferred 10 per cent of its after-tax profit to the fund.

''The purpose of the public welfare fund is to set a limit on the capital expenditure for the establishment of welfare facilities for the company's staff, and such welfare fund cannot be distributed to the staff for personal applications,'' it said.

The company said that while its staff could use the facilities, they did not own them.

One accountant with an international accountancy said Guangzhou Shipyard's treatment of the public welfare fund was ''misleading''.

He viewed the fund as a kind of capital reserve for a specific purpose, which was not distributable to shareholders.

He suggested the public welfare fund should be listed separately from the total shareholder equity.

Guangzhou Shipyard was the first of the state-owned enterprises listed in the territory to unveil full-year results. It is not clear how other Chinese companies will treat the public welfare fund.