In recent years, China’s economy has undergone significant development, leading to changes in the accounting profession that have contributed to the growth and stability of the economy.
However, there are still significant disparities between accounting standards in China and international standards, making it essential to have a comprehensive understanding of Chinese accounting standards when doing business in China.
This article provides an overview of the Chinese accounting standards and highlights key differences between them and the International Financial Reporting Standards (IFRS). Additionally, outsourcing accounting services are discussed as a solution for companies looking to expand their business in China.
An Overview of the Chinese Accounting Standards
With the rapid development of China’s economy, significant changes have occurred in the accounting profession. These changes are reflected in the increased efficiency of individual accountants and their businesses, which has contributed to the stability and growth of China’s economy.
As the most crucial reference and foundation for accounting standards implementation, it has been subject to changes and updates to conform with the International Financial Reporting Standards in recent years.
Despite the current trend towards internationalization of accounting standards, there are still significant disparities between China’s accounting regulations and the International Financial Reporting Standards.
Thus, it is essential to have a comprehensive understanding of the Chinese accounting standards to facilitate successful business operations within the country. This article will provide an overview of the Chinese accounting standards and highlight the key differences between them and the International Financial Reporting Standards.
Chinese Accounting Standards Vs The International Financial Reporting Standards (IFRS)
In recent years, considerable progress has been made towards the establishment of international accounting standards. However, accounting standards continue to vary from country to country, and China is no exception.
It is generally acknowledged that there are significant disparities between Chinese accounting standards and International Financial Reporting Standards (IFRS).
One key difference is the scope of the accounting standards. China’s accounting standards were only established in 1997 during a period of economic transformation and reforms, resulting in difficulties in accurately determining risks and costs. Although over 30 specific guidelines were issued for comments in the late 1990s, only 16 have been formally released to date. Moreover, these guidelines have a relatively narrow scope and only cover common economic businesses. They lack the detail and operability to address new issues such as real estate investment and derivative financial instruments.
In contrast, IFRS were first issued in 1973 and were based on highly developed market economies. The 41 accounting standards cover almost all economic businesses and are geared towards a market economy.
Another significant difference is the focus of accounting standards on different subjects. China’s enterprise accounting standards concentrate on the profit statement and the appropriate ratio of income. In contrast, IFRS focuses on the balance sheet and the accurate measurement of assets.
Lastly, there are differences in the measurement mode of accounting standards. The core problem of financial accounting is the measurement issue. China’s accounting standards mainly rely on historical cost as their core measurement attribute, and in most cases, do not allow for the use of fair value. In contrast, IFRS uses fair value to enhance the relevance of accounting information. For example, when measuring fixed assets, China’s standards generally use historical cost, whereas IFRS uses fair value or historical cost.
Outsourcing Accounting in China: Is this the Best Solution for your Expansion in China?
When expanding a business in China, outsourcing accounting services can be a great solution. Although Chinese accounting standards are similar to IFRS, there are still significant differences in concept, process, and application that can cause problems with financial reporting and communication with international investors and regulators. What, then, are the benefits of using an outsourcing accounting service?
Control Costs and Save Funds
By seeking local accounting support when setting up new businesses or legal entities in China, foreign companies can avoid these issues. Outsourcing accounting services offer several benefits, such as cost control and savings. With outsourcing, companies do not need to purchase expensive financial hardware and software equipment, reducing one-time capital expenditure and saving software debugging costs.
Outsourcing accounting also allows enterprises to avoid daily maintenance and upgrade costs, enabling them to invest resources in improving their management level and core competitiveness. Additionally, outsourcing accounting services can reduce labor costs, as well as other expenses such as vacation, benefits, and overtime.
More Professional Service
Outsourcing accounting services provide high-quality results, and the outsourcing agencies have a good understanding of financial and tax laws and regulations. Bookkeepers have strong professional knowledge and rich experience, enabling them to timely grasp changes in relevant policies.
Moreover, outsourcing accounting services can provide enterprises with advanced technical assistance and help improve their management level. This can also help avoid additional government red tape and lengthy procedures, or even heavy penalties. Outsourcing enterprises can also easily 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 convenient way for enterprises to focus on their core areas and highlight their main business advantages, ultimately improving their competitiveness. As a commercial means, outsourcing accounting enables the integration of internal and external optimal resources.
How FDI China Can Help Your Company with Accounting in China
For any company, maintaining an independent tax and accounting service can be an expensive option, especially for smaller ones. This is why many WFOEs and rep offices choose to outsource their accounting needs to experienced accountant services firms like ours.
We provide a full range of accounting and tax services in China, including audit services, and can tailor our offerings to suit your specific needs. Whether you need a fully outsourced accounting, tax, and audit solution or just assistance with certain areas in collaboration with your internal functions, we’ve got you covered.
Some of the areas we can assist with include:
- Setting up the initial accounting system and methodology for WFOEs or rep offices;
- Monthly preparation of company books in line with Chinese accounting standards;
- Monthly and annual preparation for tax filing with Chinese tax authorities, including 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 learn more about our services!