AN overhaul of the way joint ventures are treated in financial accounts is set to affect almost every company which operates a business in China, and which reports in the territory. Proposed accounting rules, unique to Hong Kong, could convert joint ventures - at present regarded as group subsidiaries of companies reporting in the territory - into associated companies. The change is proposed by the Hong Kong Society of Accountants. If it comes into force, it has implications for the way some companies might book debt and assets of businesses involved in joint ventures. Exact details of the proposed changes have yet to be released for consultation. The chairman of the society's financial accounting standards committee, Paul Phenix, said an appendix on how to treat different types of joint ventures in China would be added to the re-exposure draft on the new accounting standard. The appendix, based on a discussion paper issued in 1993, might greatly affect the net assets of many companies, taking into account Hong Kong's huge investment in China. Mr Phenix said joint ventures in China were a major problem and the society was dealing increasingly with the 'China aspect' in financial statements. Mainland joint ventures posed big accounting questions, he said. The joint venture was a new topic which had been evolving for 10 years at most, and was still developing. 'The problem is, there is no standard treatment [of joint ventures],' he said. The society's deputy director of professional standards, Tommy Fung, said that according to the draft, whether or not a joint venture could be treated as a subsidiary would depend on the Hong Kong company's degree of control in the venture. This was because the Chinese partner might still have complete control over the venture even if the Hong Kong party held more than 50 per cent of the venture, he said. There were three types of joint ventures in China, collectively known as foreign investment enterprises - co-operative contractual joint ventures, equity joint ventures, and sole foreign investment enterprises. While control was not a controversial issue in regard to the third type, there was a need for clarification in regard to the others. Mr Fung expected the appendix to have extensive coverage on co-operative joint ventures because contracts for these ventures varied greatly. Under the draft, joint ventures would fall into four categories - subsidiaries, joint ventures, associates, and financial arrangements. Equity joint ventures were less controversial as mainland legislation had clearer definition on the control of them, he said. A partner of Coopers & Lybrand, Roger Knight, said most joint ventures would be treated as associates if the new standard was endorsed. While net profit should not be affected, the asset line could be different when a subsidiary was later treated as an associate, he said. Declining to estimate the impact, Mr Fung said the draft would require prior adjustment for comparison. The re-exposure draft, which covers all joint ventures, would require companies to treat joint ventures on the basis of proportionate consolidation only. That meant companies would have to put assets in joint ventures under one line. The first exposure draft of the accounting standard on joint ventures, issued late last year, allowed companies to choose between proportionate consolidation and equity accounting.