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    Country by Country Financial Reporting and Auditing Framework

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    China – Ruihua CPAs (prepared March 2014)

    Preparation of and Filing of Statutory Financial Statements

    Listed companies shall, within four months from the end of the financial year, publish the annual report on the internet website designated by the China Securities Regulatory Commission ("CSRC"), and publish the summary of the annual report on at least one newspaper designated by the CSRC.


    For public companies listed in both domestic and foreign stock exchanges at the same time, if the preparation and disclosure requirements for annual reports set forth by the foreign securities regulatory authority is inconsistent with these Standards, the principle of more over less contents disclosed and observing the stricter rules when there are discrepancies shall be followed, and the both sets of annual reports should be published simultaneously.  Companies that have issued domestically listed foreign-capital shares and derivative securities and have been listed in stock exchanges shall also prepare a foreign language version of the annual report.


    Financial Reporting Framework

    In China, all enterprises must comply with Accounting Law of People's Republic of China and Regulation on Financial Reporting of Enterprises, in handling accounting affairs and compiling their financial reports.


    For the preparation of financial statements, Accounting Standards for Business Enterprises (ASBEs) is generally adopted by most of the enterprises established in China, including all the central enterprises, large and medium-sized state-owned enterprises, and listed companies. Other PRC enterprises are encouraged to apply. ASBEs comprise a basic standard that clarifies accounting policies and 38 specific standards. It used the IFRS as a reference in order to gradually come closer to international accounting standards.


    Besides ASBEs, there are other alternative standards ruling financial statements preparation, such as:

    • Accounting Standards for Small Business Enterprises;

    For companies that fall within the category of 'small business enterprise' to apply. Small enterprises are defined in terms of number of employees, turnover, total assets, etc.

    • Accounting Standards for Public Institutions;

    The term "public institutions" refers to the public service organizations that are established by the state organs or other organizations by using the state-owned assets for the purpose of engaging in activities of education, science and technology, culture and hygiene.

    • Enterprise Accounting System;

    It is applicable for Foreign Invested Entities ("FIE") who are not following ASBEs, as well as for those partnerships, limited liability companies who are not fallen within the category of "small enterprises"

    • Financial Enterprise Accounting System

    It is applicable for financial institutions, such as commercial bank, insurance company, brokerage, credit union, unit trust, leasing company, Security Company, and financial company.


    According to ASBEs, financial statements or reports should comprise a balance sheet, income statement (profit and loss account), statement of changes in equity, cash flow statement, and notes to financial statements. An enterprise shall adopt the accrual basis of accounting in performing recognition, measurement and reporting for accounting purposes.


    The financial accounting reports shall be classified into the annual, semi-annual, quarterly and monthly financial accounting reports. Generally, the quarterly or monthly financial accounting report means the accounting statement only, which shall include the balance sheet and the profit statement at least.


    The accounting year of an enterprise shall start on 1 January and end on 31 December.


    The Accounting Law stipulates that companies must keep three kinds of primary accounting records: journals, a general ledger and subsidiary ledgers, as well as appropriate supplementary memorandum records. Computerized accounting systems, if utilized, the software and accounting documents, account books, financial accounting statements and other accounting materials produced therefrom must also comply with the provisions of the State's unified accounting system.


    All accounting documents, books and statements prepared by a FIE must be written in Chinese, however, they may also be written concurrently in a foreign language.


    Renminbi (RMB) is the basic accounting currency in accounting practice, unless agreed otherwise by relevant authorities and partners. If a foreign currency is used, the financial statements must be converted into RMB at year-end for the preparation and auditing of the annual financial statements.


    Audit Requirements for Corporations and LLPs Registered in China


    According to the People's Republic of China (PRC) Company law, Enterprise Income Tax Law of People's Republic of China, and relevant regulations, companies in China are required to prepare their annual financial statements, including balance sheets, income statements and cash flow statements for their annual PRC statutory audit. It is generally the duty of the board of directors of a company to appoint the auditor. An annual statutory audit can only be performed by a firm of Certified Public Accountants (CPAs) registered in the People's Republic of China. The objective of a statutory audit is to ensure that companies meet Chinese financial and accounting standards, including proper use of Chinese GAAP.


    The deadline for the filing of statutory annual audit report is by the end of April of the following year. The audited financial statements should also be filed with the tax authorities, together with Annual CIT Reconciliation Report, within five months after the end of each tax year.


    In the case of related party transactions, FIEs that reach the threshold (RMB 200m for trading companies and RMB 40m for service provision companies) are required to prepare an Annual Affiliated Transaction Report on transfer pricing issues as a supplementary document to the Annual CIT Reconciliation Report.


    Additionally, FIEs are required to submit an audit report for foreign exchange reconciliation to the State Administration of Foreign Exchange ("SAFE"), in order to demonstrate the legality of a company's foreign currency inflows and outflows. This report should also be audited by an authorized Chinese CPAs firm.

    SAFE will issue the annual guidelines on annual foreign exchange reconciliation around March or April each year and the guidelines may vary by region. The deadline for submitting all the documents is May 31.

    Audit Appointment, Rotation and Joint Audits


    Audit Appointment

    General requirement of audit appointment


    Where a company plans to hire or dismiss any accounting firms to undertake the auditing of the company, a resolution shall be made by the shareholders' meeting, the shareholders' assembly, or the board of directors according to the provisions of the bylaw.


    When the shareholders' meeting, the shareholders' assembly, or the board of directors carries out a vote to dismiss an accounting firm, the accounting firm shall be allowed to state its own opinions.


    Special requirement of audit appointment and dismissal for listed companies

    Listed companies should appoint accounting firm who is qualified for undertaking the relevant securities business, to perform the financial statement audits, capital verification and other related consulting services. The appointment term is one year, and can be extended.


    The relationship between the auditor and the company is that the appointment, continual appointment and dismissal of the audit firm, and the auditors' remuneration are determined during the shareholders' meetings.


    If an audit firm is dismissed or if the appointment is not renewed, then the audit firm should be notified in advance. In addition, this should be disclosed, together with the reason for the change, in a specified publication. Furthermore, the incident should be reported to the CSRC and the China Institute of Certified Public Accountants ("CICPA"). The audit firm has the right to express its views during the shareholders' meeting. If the audit firm deems that the dismissal or non-renewal of appointment is without basis, then it can appeal to the CSRC and the CICPA. Audit firms resigning from the engagement should disclose whether they have uncovered any irregularities or not.


    Special requirement of audit appointment and dismissal for central enterprises


    For the purpose of guaranteeing the authenticity of the annual financial status and operation achievements of central enterprises, the State-owned Assets Supervision and Administration Commission of the State Council ("SASAC")  shall, in light of the need of financial supervision work, uniformly entrust some accounting firms to audit the enterprises' annual final finance accounts.


    Audit Rotation


    State-owned and central enterprise


    Auditor must serve the central enterprise for at least two consecutive years, but not exceeding five consecutive years. For CPA firms that rank Top 15 nationally with high service quality, the service team can be extended to eight consecutive years after the approval of SASAC. Moreover, when the audit firm has completed the conversion to a special general partnership with H-share qualification, after approval of SASAC, the service term can be extended to ten consecutive years. If the audit service term exceeds five years as described above, from the sixth year, the auditor must rotate the partner in charge of the project and the Certified Public Accountants who sign the report.

    Listed Companies


    In respect of an audit of a public interest entity, an individual shall not be a key audit partner for more than five years. After such time, the individual shall not be a member of the engagement team or be a key audit partner for the client for two years.


    There is no requirement to rotate the audit firms.


    Auditing Standards


    The "Chinese CPA Practicing Standards", comprise of one basic standard for assurance engagements, and 50 auditing standards, should be applied where audit institutions at all levels and auditors perform the audit tasks as well as special audit investigations. They should also be applied where other organizations or individuals, designated or engaged by audit institutions, exercise the audit function or participate in certain aspects of audit. But the auditing standards shall not be applied where audit institutions perform the non-audit functions such as joint examination of matters with competent authorities. 


    The financial audit shall also comply with the Professional Standards of the Certified Public Accountants.


    In terms of the audit of enterprise internal control, all listed companies established within the territory of mainland China will be required to comply with Basic Standards for Enterprise Internal Control (The Basic Standard), and non-listed large and medium-sized Chinese enterprises are encouraged to adopt The Basic Standard.


    Ethical Framework


    In order to regulate the professional behavior of the members of the Chinese CPAs, enhance their level of professional ethics in advance, and maintain their professional images, the CICPA has developed "China Code of Ethics for CPAs".


    The China Code of Ethics for CPAs not only covers the fundamental principles of professional ethics such as Integrity, Independence, Objectivity, Professional Competence and Due care, Confidentiality, and Professional Behavior, but also gives instructions in conceptual framework, specific requirements in providing professional services, independence requirements for audit and review engagements and independence requirements for other assurance engagements.


    Ruihua Certified Public Accountants ("Ruihua") is bound by China Code of Ethics for CPAs. In addition, based on the professional Code of Ethics, Ruihua has established specific professional ethic requirements and applied within the firm. 

    Audit Regulation


    External Monitoring

    Ruihua is subject to external inspection by several departments, include: Ministry of Finance and its local offices; China Security and Regulatory Commission and its local offices; and China Institution of CPAs and its local offices.


    The supervision department of Ministry of Finance has the rights and obligations to supervise accounting firms, conduct on-site/special inspections, and make assessments on the service quality.


    The China Security and Regulatory Commission conduct quality inspections on accounting firms with securities qualification in relates to their relevant securities business.


    China Institution of CPA conducts quality inspection on accounting firms engaging in relevant businesses on securities and futures every three years, and on the rest of accounting firms every five years.

    Internal Monitoring


    Ruihua has established a set of quality control policies and procedures that include scoring and classifying audit engagements in order to control the quality of our various audit engagements proficiently. We also operate an audit control framework that addresses five key audit activities, namely compliance with the firm's audit policy and procedures, delivery of audit assignments, review of audit work products, consultation on key audit issues, and monitoring of audit related activities and products. At a more detailed level, audit engagements are categorized into three types (A, B, C) based on their assessed audit risks, where each type has its own specific audit review procedures.

    Transparency Report


    In China, there are no requirements for transparency report.


    1. Article 11, Circular of China Securities Regulatory Commission on Issuing the Standards for the Content and Format of Information Disclosure by Companies that Offer Securities to the Public No. 2 - the Contents and Formats of Annual Report (Revised in 2007)
    2. Article 8, Circular of China Securities Regulatory Commission on Issuing the Standards for the Content and Format of Information Disclosure by Companies that Offer Securities to the Public No. 2 - the Contents and Formats of Annual Report (Revised in 2007)
    3. revised and adopted at the 12th Meeting of the Standing Committee of the Ninth National People's Congress on 31 October 1999
    4. issued by the State Council on 21 June 2000
    5. issued by the Ministry of Finance on 15 February 2006
    6. issued by the Ministry of Finance on 18 November 2011
    7. issued by the Ministry of Finance on 29 December 2000
    8. Issued by the Ministry of Finance on 27 November 2001
    9. Article 9, ASBEs
    10. Article 6&7&8, Regulations on Financial Accounting Reports of Enterprises
    11. Article 11, Accounting Law of People's Republic of China
    12. Article 63, Company Law of People's Republic of China
    13. Article 54, Enterprise Income Tax Law of People's Republic of China
    14. Article 129, Enterprise Income Tax Law of People's Republic of China
    15. Same as accounting year - 1 January to 31 December
    16. Article 170, Company Law of People's Republic of China
    17. "Notice in relation to appointment or change of Certified Accountants Firms(Audit firms) of listed companies" (CSRC [1996] No.1 Notice) issued by China Securities Regulatory Commission
    18. "Rules Concerning the Audit of Final Financial Accounts of Central Enterprises" (Guo Zi Fa Ping Jia [2004] No. 173)
    19. Article 88, China Code of Ethics for Certified Public Accountants No.4- Independence Requirements for Audit and Review Engagement
    20. developed by CICPA and issued by Ministry of Finance
    21. Jointly released by the Ministry of Finance (MOF), the China Securities Regulatory Commission (CSRC), the National Audit Office (NAO), the China Banking Regulatory Commission (CBRC), and the China Insurance Regulatory Commission (CIRC) on 28th June 2008

    Contact Us
    David Chitty - Audit
    London, United Kingdom
    +44 20.7842.7292

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