What You Need to Know about Accounting

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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

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A Regional Full Service Accounting Firm with
Global Outreach

• www.SwensonAdvisors.com

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Overview of Chinese Accounting Standards

• Accounting System for Business Enterprises
  (ASBE)
• Chinese Accounting Standards (CAS)
• Ministry of Finance (MOF)
• Hong Kong
• PRC

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Accounting Systems for Business Enterprises 13
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

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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

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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

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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).

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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

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Other CAS Observations

• Debt Restructuring
• Revenue Recognition
• Non-Monetary Transactions
• Intangible Assets
• Inventory

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CAS vs IFRS
Key Considerations
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What are IFRSs?

• 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 IASs)
• 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)

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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 IASs)
• 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)

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MA 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)

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EJVs and CJVs
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WFOEs
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Chinese State Government Legislation Effecting
MA in China
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Ethics and CorruptionIn Asia Today
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Ethics has Left the Building
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The Lack of Ethical Behavior is Still Rampant
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Setting the Tone at the Top

• Board of Directors
• Audit Committees
• Chief Executive Officer
• Senior Management

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William WilberforceAuthentic Leadership

• He Changed the World
• 200th Anniversary Celebration
• Outstanding Film in 2007
• Metaxes, E, CC Amazing Grace. New York, NY
  HarperCollins Publishers, 2007.

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SOX (Sin Management) USA - Style
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Post Enron Era

• US Accounting Fraud
• 577 Separate Cases
• 693 Fraud Convictions
• 1,000 Corporate Executives
• 1,300 Individuals

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China Today

• 41,000 Executives Prosecuted in 2007
• Multiple Sets of Book
• FCPA Still the World Standard
• Audit Styles
• Other

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Setting Up Representative Offices in China (ROs)

• 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 Peoples Bank of China
• Open Bank Account
• Enter into Employment Contracts

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Swenson Hong Kong Office Expansion
Certificate of Incorporation
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Swenson Hong Kong Office Expansion
Calvin, Simon and Steve in the reception area of
Swensons Hong Kong office
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Integra InternationalTrade Mission Highlights
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Integra InternationalTrade Mission Highlights
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Integra InternationalTrade Mission Highlights
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Integra InternationalTrade Mission Highlights
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Integra InternationalTrade Mission Highlights
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Integra InternationalTrade Mission Highlights
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CONTACT ME ATsteve.austin_at_swensonadvisors.com

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