Foreign investors need to be mindful of the Chinese Accounting Standards for Business Enterprises, the mainland's revised accounting standards otherwise known as the new PRC GAAP, despite government efforts to converge them with the International Financial Reporting Standards (IFRS).
'The new PRC GAAP was developed with the intention of achieving convergence with the IFRS so far as the structure and presentation of financial statements and recognition and measurement of financial statement line items are concerned,' says Douglas Lau, Institute of Chartered Accountants in England and Wales director, Hong Kong region.
'However, it does take China's specific situation and its transforming market economy into consideration and is not a direct adoption of the IFRS.'
Areas of difference include not permitting the reversal of impairment losses for long-term assets; the introduction of fair value measurements from the standpoint of appropriateness and prudence; and not allowing the revaluation model to be used for property, plant and equipment held for a company's own use.
'For foreign investment enterprises who have to prepare a group reporting package under the IFRS for group consolidation purposes and PRC financial statements for PRC filing purposes, it is important to note that, when preparing PRC financial statements, the new PRC GAAP generally does not allow the enterprises to adopt IFRS on matters not covered in the PRC GAAP,' Lau says.
Foreign businesses should not simply copy its group accounting policies where the Chinese accounting standard appears silent.
'Instead, companies need to determine whether there is a conflict between its group accounting policies and the new PRC GAAP and consult the Ministry of Finance if necessary,' he says.