Accounting in China: Standards and Benefits of Outsourcing Accounting

Written by
Vicky Zhang – Finance Manager

Companies coming to China to open their businesses immediately notice that things are different compared to their home countries, and this applies also to accounting.

Accounting in China is not an easy matter, mainly because the standards used are different from the International standards.

While getting a good local China accounting advice is important, it doesn’t hurt to know how things work in the country.

This article will show you the difference between Chinese and International standards and what are the benefits of outsourcing a delicate function like accounting.

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An Overview of the Chinese Accounting Standards

With the rapid development of economy in China, significant changes have taken place in the accounting profession, reflected in the accountant individual business level and the continuous improvement of work efficiency, both to promote China’s economic stability and ensure China’s economic development.

As the most important reference and basis for the implementation of accounting standards, it also changes accordingly to the International Financial Reporting Standards in recent years, and constantly converges with it.

From the point of the current situation, the direction of accounting standards internationalization is the inevitable trend of the development of the accounting industry, but there are still great differences between China’s accounting standards and International Financial Reporting Standards.

Chinese accounting standards VS IFRS

Progress has been made in the past few years in establishing international accounting standards.

But standards still differ from country to country, and China is no exception.

It is generally believed that there are great differences between Chinese accounting standards and international accounting standards.

First, the scope of the accounting standards are different. The specific standards of China’s accounting began to be issued only from 1997, because at that time China’s economy was in the period of economic transformation and reforms. The risks and costs were not easy to grasp, resulting in a difficult introduction of the accounting standards.

In the late 1990s, China issued more than 30 specific guidelines for comment draft, but so far, the formal releases of specific guidelines are only 16.

Even from the point of view of the specific guidelines that have been issued at present, their scope is still small, and they are only related to some relatively common economic businesses.

Moreover, the regulations are not detailed enough, with poor operability, and they fail to cover some new issues, such as investment in real estate and derivative financial instruments.

International accounting standards were first issued in 1973 and were established on the basis of highly developed market economy. The 41 accounting standards cover almost all economic businesses and have obvious characteristics of market economy.

Second, accounting standards focus on different subjects. China’s enterprise accounting standards focus on the profit statement, the appropriate and reasonable ratio of income. And the international accounting standards focus on the balance sheet, the accurate measurement of assets.

Third, different accounting standards of measurement mode. The core problem of financial accounting is the measurement problem.

China’s accounting standards of the core measurement attribute is the historical cost, the vast majority of cases prohibit the use of fair value.

The core measurement attribute of international accounting standards is fair value to enhance the relevance of accounting information. Taking the measurement basis of fixed assets as an example, China’s standards generally use historical cost, while international accounting standards use fair value or historical cost.

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Outsourcing Accounting in China: Is this the Best Solution for your Expansion in China?

It is generally considered that there is not so much difference between Chinese accounting standards and IFRS.

But in practice, there are still big differences in concept, process, and application environment between two standards.

For foreign companies that operate in China, the misunderstanding of the Chinese accounting standards and the application of the IFRS can cause problems with financial reports, and that may even cause misunderstandings when the company transfer files and communicate financial information with international investors and regulators.

So it is recommended that foreign companies seek local accounting support when setting up new businesses or legal entities in China.

What are the Benefits of Using an Outsourcing Accounting Service?

Control Costs and Save Funds

Informatization, outsourcing and shared service are the three most effective ways for modern enterprises to cut costs.

With the standardization of modern financial management and the development of computerization, enterprises must buy corresponding financial hardware and software equipment, and the purchase cost of these equipment and facilities is very expensive.

Using outsourcing accounting services allow companies to not purchase and build corresponding hardware and software equipment to complete some financial functions, which can reduce the one-time capital expenditure and save software debugging costs.

Second, outsourcing accounting enables enterprises to avoid the daily maintenance cost and upgrade cost required by system operation, and not be disturbed by the daily maintenance work of financial software and hardware system, so as to truly invest resources in improving the management level of enterprises and developing their own core competitiveness.

Outsourcing accounting can reduce expenses by outsourcing links with complex business, small value content or links that the enterprise is not good at.

In addition, the company can enjoy extremely low outsourcing costs through the scale effect obtained by the outsourcer.

As a last point, outsourcing accounting reduces labor costs. Enterprise outsourcing accounting service avoids the cost of IT employed to maintain the financial management application system and financial person engaged in outsourcing, especially IT, whose cost is often higher than the cost level of most employees.

Not only that, outsourcing accounting service can also reduce a lot of additional costs, including vacation, benefits, overtime, and so on.

More Professional Service

Outsourcing accounting not only enables enterprises to obtain high-quality service results, but also enables relevant employees of enterprises to get in touch with the advanced financial management methods of the industry.

The outsourcing agencies have a good understanding of financial and tax laws and regulations, and bookkeepers have strong professional knowledge and rich experience, and can timely grasp the changes of relevant policies, which cannot be achieved by a general accountant.

Moreover, outsourcing accounting services can also provide enterprises with advanced technical assistance and help them improve their management level.

This is often a good solution to avoid additional government red tape and lengthy procedures, or even heavy penalties. It is also relatively easy for outsourcing enterprises to provide IFRS and Chinese accounting standards converters.

A convenient way to highlight your main business and get in touch with new management ideas

Outsourcing accounting is a commercial means. The goal is to achieve the integration of internal and external optimal resources, improving the competitiveness of companies.

With the development of market economy, driven by the pursuit of value maximization, the competition among enterprises is increasingly intensified, which urges enterprises to improve their comparative advantages in all aspects in order to win in the competition.

As an enterprise, resources have certain limitations, which makes it impossible to improve management to cover all areas.

This makes enterprises to focus the limited energies on their core areas, focusing on the development and management of core departments, highlighting the main business advantages, occupying a greater market share.

On the one hand, accounting outsourcing can highlight the main business of an enterprise; on the other hand, it can use the professional advantages of external organizations to realize and tap the value-added potential of outsourcing processes.

How FDI China Can Help Your Company with Accounting in China

Maintaining an independent tax and accounting service is an expensive option for any company, especially a smaller one, and many WFOEs and rep offices choose to outsource this to an experienced accountant services firm.

We provide a full range of accounting and tax services in China, as well as audit services. We can adapt our offering to suit the assistance you need. We can operate a fully outsourced accounting, tax and audit solution for you, or can just handle parts of this in collaboration with your internal functions.

Areas we can assist include the following:

  • Set up of initial accounting system and methodology for WFOE or rep office
  • Monthly preparation of company books in line with Chinese accounting standards
  • Monthly and annual preparation for tax filing with Chinese tax authorities
  • Preparing filing for Business tax, Individual Income tax and Corporate tax
  • Annual audit of financial statements
  • Consideration of appropriate double taxation treaties

Contact us to get a FREE quote and know more about services!