A Quick Guide to Accounting and Audit in China 2023 (1st Edition)

AQuickGuidetoAccountingandAuditinChina2023(1stEdition)1 AQuickGuidetoAccounting andAuditinChina2023 1stedition Disclaimer ThiseditionofAQuickGuidetoAccountingandAuditinChina2023wasproducedbyateamofprofessionalsatDezanShira&Associates,withZhouQianastechnicaleditor.CreativedesignoftheguidewasprovidedbyAparajitaZadoo. Thecontentsofthisguideareforgeneralinformationonly.Foradviceonyourspecificbusiness,pleasecontactaqualifiedprofessionaladvisor.Noreproduction,copyingortranslationofmaterialswithoutpriorpermissionofthepublisherispermitted. ©2022AsiaBriefingLtd. ThestartofanewyearisahectictimeforforeigncompaniesinChina.Tomeetthevariouscompliancedeadlinesscatteredthroughouttheyear,theyneedtobeginthelongandcomplicatedprocessoffinancialreporting,monthsinadvance.Failuretocomplywillriskthembeinghitwithdeterioratingcredit,additionalfinesandpenalties,andsuchcompaniesmightnotbeabletoremittheirprofitsoverseas. WithbusinessescontinuouslyaffectedbytheCOVID-19pandemicandothereconomicheadwinds,financialhealthandcompliancehasbecomemoreimportantthanever.Moreattentionshouldthusbegiventotheauditandcomplianceprocedurestorevealunexpectedirregularitiesorsuboptimalbusinesspractices,discovereligibilityfortaxincentivesthathadnotpreviouslybeencaptured,aswellasmaximizeefficiencywithintheorganization. ChinaBriefing’sAQuickGuidetoAccountingandAuditinChina2023(1stEdition),producedincollaborationwiththeauditexpertsatDezanShira&Associates,aimstowalkforeignbusinessesthroughtheannualauditandcomplianceprocessfromstarttofinish,inadditiontointroducingChina’saccountingframeworkinacomparativecontext.WehopethisguidehelpsyourbusinessaddvaluetoitsannualstatutoryauditandcompliancereportinginChina. Ifyouandyourcompanywanttolearnmoreabouthowtogetreadyfortheannualauditandcompliance,youarewelcometogetintouchwithDezanShira&Associates.Formoreinformation,pleaseemailusatChina@dezshira.com. SABRINAZHANG Partner DezanShira&Associates CONTACT DezanShira&Associateschina@dezshira.comwww.dezshira.com DezanShira&Associatesisapan-Asia,multi-disciplinaryprofessionalservicesfirm,providinglegal,taxandoperationaladvisorytointernationalcorporateinvestors.OperationalthroughoutChina,IndiaandASEAN,ourmissionistoguideforeigncompaniesthroughAsia’scomplexregulatoryenvironmentandassistthemwithallaspectsofestablishing,maintainingandgrowingtheirbusinessoperationsintheregion.With30yearsofon-the-groundexperienceandalargeteamoflawyers,taxexpertsandauditors,inadditiontoresearchersandbusinessanalysts,weareyourpartnerforgrowthinAsia. OurServices >Accounting >AuditandFinancialReview >BusinessAdvisory >BusinessIntelligence >CorporateEstablishmentandGovernance >DueDiligence >HRandPayroll >IntellectualProperty >MergersandAcquisitions >OutboundDirectInvestment >RiskManagement >Tax >Technology Preface03 Part1|Chineseaccountingstandards07 WhataccountingstandardsareadoptedinChina?09 NewchangesmadetoCASinrecentyears11 DiscrepanciesbetweenCASandthetaxlaws15 DifferencesbetweenCASandIFRS20 Part2|AnnualauditinChina25 Whyisannualauditimportant?27 Whatdoestheannualauditinvolve?29 Howtoprepareforaneffectiveannualaudit?31 Annualauditvs.internalcontrolreview37 Part3|AnnualcompliancerequirementsinChina43 AnnualcomplianceproceduresforFIE45 AnnualcompliancerequirementsforROs49 Tipsonmanagingannualcompliancerequirements51 1 Chineseaccountingstandards •WhataccountingstandardsareadoptedinChina? •NewchangesmadetoCASinrecentyears •DiscrepanciesbetweenCASandthetaxlaws •DifferencesbetweenCASandIFRS ForeigncompaniesestablishingapresenceinChinawillencounterahostofconsiderationsthatdonotexistintheirhomecountry.Ofthese,interpretingandunderstandingChina’ssystemofaccountingstandardscanbeanespeciallydifficultchallenge. Inthischapter,we’llintroducetheaccountingstandardsadoptedinChina,thediscrepanciesbetweentheChineseaccountingstandardsandthetaxlaws,andthedifferencebetweenChineseaccountingstandardsandtheIFRS. HANNAHFENG PartnerBeijingOffice “ ForforeigncompaniesestablishingapresenceinChina,interpreting andunderstandingChina’ssystemofaccountingstandards canbeanespeciallydifficultchallenge.” WhataccountingstandardsareadoptedinChina? ChinahasstartedtodevelopitsownaccountingrulesreferredtoastheChineseAccountingStandards(CAS)since1992.DespitesubstantialconvergencebetweenCASandtheInternationalFinancialReportingStandards(IFRS)thatmostwesterninvestorsareusedto,practicalimplementationandinterpretationdifferencesremain. TheCASframework,alsoknownasChineseGenerallyAcceptedAccountingPrinciples(ChineseGAAP),isbasedontwostandards: •AccountingStandardsforBusinessEnterprises(ASBEs);and •AccountingStandardsforSmallBusinessEnterprises(ASSBEs). TheMinistryofFinance(MOF)releasedASBEsin2006andbroughtthemintoeffectinJanuary2007.Itexperiencedseveralamendmentsinthefollowingyears.Currently,theASBEsconsistofonebasicstandard,42specificstandards,andseveralapplicationguides.Mostforeigninvestedenterprises(FIEs)establishedinChinagenerallyadoptASBEsfortheiraccountingandfinancialreports. EnteringintoforceonJanuary1,2013,theASSBEsare