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What You Need to Know about Accounting & Auditing in China - Hot Topics. Stephen Austin, CPA, MBA Firm Managing Partner Swenson Advisors, LLP San Diego, California Accounting Day May 12, 2008. A Regional Full Service Accounting Firm with Global Outreach. www.SwensonAdvisors.com.
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What You Need to Know about Accounting & Auditing in China- Hot Topics Stephen Austin, CPA, MBA Firm Managing Partner Swenson Advisors, LLPSan Diego, California Accounting Day May 12, 2008
A Regional Full Service Accounting Firm with Global Outreach www.SwensonAdvisors.com
Overview of Chinese Accounting Standards • Accounting System for Business Enterprises (ASBE) • Chinese Accounting Standards (CAS) • Ministry of Finance (MOF) • Hong Kong • PRC
Accounting Systems for Business Enterprises13 Chapters • Chapter 1 General Provisions • Chapter 2 Assets • Chapter 3 Liabilities • Chapter 4 Owners’ Equity • Chapter 5 Revenue • Chapter 6 Costs and Expenses • Chapter 7 Profit and Profit Distribution • Chapter 8 Non-monetary Transactions • Chapter 9 Foreign Currency Transactions • Chapter 10 Accounting Adjustments • Chapter 11 Contingencies • Chapter 12 Related Party Relationships and Transactions • Chapter 13 Financial Reports
Chinese Accounting StandardsEffective July 1, 1993 “BASIC STANDARD” Plus 16 CAS • Disclosures of Related Party Relationships and Transactions • Cash Flow Statements • Events Occurring After the Balance Sheet Date • Debt Restructuring • Revenue • Investments • Construction Contacts • Changes in Accounting Policies and Accounting Estimates and Corrections of Accounting Errors
Chinese Accounting Standards(continued) “BASIC STANDARD” Plus 16 CAS (continued) • Non-monetary Transactions • Contingencies • Intangible Assets • Borrowing Costs • Leases • Interim Financial Reporting • Inventories • Fixed Assets
Future Accounting Standards • Segment Reporting; • Foreign Currency Translations; • Presentation of Financial Statements; • Earnings Per Share; • Accounting for Government Grants; • Discontinuing Operations; • Business Combinations; • Consolidated and Separate Financial Statements; • Impairment of Assets; • Disclosure by Banks and Similar Financial Institutions; • Financial Instruments: Disclosure and Presentation; • Agriculture; • Oil and Gas; Other Extractive Industries (mining, etc).
Key Considerations • Chinese Accounting (traditionally) Designed for State Government Decision Making • National Macro Economic Control • Materially Principles e.g. Related Party Disclosures, Chapter 3 • Related Portions Exclude: • Financial Sources • Public Utilities • Government Department and Agencies
Other CAS Observations • Debt Restructuring • Revenue Recognition • Non-Monetary Transactions • Intangible Assets • Inventory
CAS vs IFRS Key Considerations
What are IFRS’s? • A Single Set of Globally-Accepted, High Quality Accounting Standards • Developed by the Internationally Accounting Standards Board (IASB) • Successor of the International Accounting Standards Committee (developed IAS’s) • Used in Approximately 105 Countries and Growing • Standards are Principles Based and Less Extensive • Lack Guidance (including Industry Specific Guidance) • Frequently, the Application of IFRS Requires Judgment)
IASB Structure • A Single Set of Globally-Accepted, High Quality Accounting Standards • Developed by the Internationally Accounting Standards Board (IASB) • Successor of the International Accounting Standards Committee (developed IAS’s) • Used in Approximately 105 Countries and Growing • Standards are Principles Based and Less Extensive • Lack Guidance (including Industry Specific Guidance) • Frequently, the Application of IFRS Requires Judgment)
M&A Environment in China • 1.3 Billion People • 200,000,000 “Other Citizens” • 10%+ Growth Rate • Key Manufacturing Hub of the World • Past 15 Years Largest Recipient of Foreign Private Investors and Development Nations • Foreign Invest Independent Guidance Catalog (10/31/07)
EJV’s and CJV’s
Chinese State Government Legislation Effecting M&A in China
The Lack of Ethical Behavior is Still Rampant
Setting the “Tone at the Top” • Board of Directors • Audit Committee’s • Chief Executive Officer • Senior Management
William Wilberforce:Authentic Leadership • He Changed the World • 200th Anniversary Celebration • Outstanding Film in 2007 Metaxes, E, CC: Amazing Grace. New York, NY: HarperCollins Publishers, 2007.
SOX (Sin Management) USA - Style
Post Enron Era US Accounting Fraud • 577 Separate Cases • 693 Fraud Convictions • 1,000+ Corporate Executives • 1,300 Individuals
China Today • 41,000 Executives Prosecuted in 2007 • Multiple Sets of Book • FCPA – Still the World Standard • Audit Styles • Other
Setting Up Representative Offices in China (RO’s) • Acquire Preliminary Approval as Needed • Register with the Administration of Industry an Commerce for Registration Certificate • Apply for Carving the Official Chops • Apply at the Bureau of Quality and Technology Supervision • Apply for Local Tax Registration • Apply for State Tax Registration • Apply for Approval at People’s Bank of China • Open Bank Account • Enter into Employment Contracts
Swenson Hong Kong Office Expansion Certificate of Incorporation
Swenson Hong Kong Office Expansion Calvin, Simon and Steve in the reception area of Swenson’s Hong Kong office
CONTACT ME AT:steve.austin@swensonadvisors.com “Rise of the New Ethics Class” (Visit our Booth to Receive your Copy) www.SwensonAdvisors.com