Accounting and Bookkeeping in China

June 20, 2012 Posted by China Briefing Reading Time: 3 minutes

Jun. 20 – China’s current basic accounting standards, issued by the Ministry of Finance in 2006, are broadly in line with the International Financial Reporting Standards.

All foreign-invested enterprises in China are required to prepare annual financial statements, including balance sheets and income statements for their annual Chinese audit (conducted by a CPA registered in China). RMB is the base currency for ledgers and financial reports. For enterprises using currencies other than RMB in their business transactions, the foreign currency can be used as the bookkeeping base currency. However, the financial reports are required to be shown in RMB. Furthermore, accounting records have to be maintained in Chinese. Foreign-invested enterprises can choose to use only Chinese or a combination of Chinese and a foreign language.

Enterprises in China should adopt the accrual basis of accounting in performing recognition, measurement and reporting for accounting purposes. Foreign-invested enterprises, including their legally responsible persons, must take full responsibility for the truthfulness, legitimacy and completeness of financial statements. These statements will be used for computing the taxable and distributable profits of the business. Books and records have to be retained for at least 15 years under Chinese law.

By law, any business transaction carried out in Mainland China requires a fapiao. More than just an official receipt with a distinctive red oval seal, a fapiao is a tax invoice designed to ensure the government receives tax payment. A significant portion of small to medium-sized companies conduct certain sales under the table and remain reluctant to part with their fapiaos, since tax will be payable on the profits of every sale that they make in which a fapiao is issued. This is the way the tax bureau ensures that taxpayers fulfill their tax obligations. For those purchasing goods and services, fapiaos are essential for claiming value-added tax refunds and lowering tax liability.

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