Chinese GAAP

Other important issues of ERP China refer to the Chinese Gaap. At the end of each month two accounting books must be drafted because of the differences between the Chinese GAAP and the International Accounting Standards (IAS):

  • one complying with the Chinese accounting rules
  • the other complying with the rules of the country where the company’s headquarter is placed.

The Chinese accounting standard requires 3 compulsory accounting reports, necessary for getting the approval of the Chinese authority for the financial systems and ERP. The companies must present reports of their balance sheet, losses and profits, cash flows and define the accounting bases such as investments, proceeds, costs. China ERP and CDM consultants fill this gap supplying accounting reports which meet all of the necessary legal requirements.


All the companies must update the accounting books for their commercial activities. At the end of each period, the company must present its annual financial report to the shareholders’ meeting for its approval or correction. The annual financial report, which must be prepared using the PRC accounting principles, includes the balance sheet, income statement, financial statement and cost allocation, balance sheet detail notes, additional declarations and notes of the management on the Company’s financial results. The companies’ balance must be verified and certified by a CPA, complying with laws and rules, at the end of each financial period (which coincides with the civil year in China). The accounting files must be kept and available permanently or for a period of time, which could be three, five, ten, fifteen and twenty-five years. The companies carrying out accounting activities (such as the preparation of accounting papers, registration of accounting books and management of accounting papers) must comply with the provisions of the PRC accounting law, the fundamental provisions of practical accounting and management of accounts. The companies must keep their accounting in RMB. If the operative income and expenses are recorded mainly in a currency different from RMB, the company could choose any currency as accounting currency; but, the company’s balance must be converted into RMB.


The company must include the following items in its balance: • Balance Sheet • Profit & Loss • Financial statement • Income statement • Supplementary notes to the account • Additional declarations • Management’s Commentary on the financial results Some documents must be drafted monthly while other ones quarterly or twice a year or yearly. The accounting system for the commercial enterprises sets the contents of the financial reports, types and kinds of balance, and the details of the notes to the balance itself. The accounting year is usually the calendar year. If the financial year of the head office does not end on 31st December, a FIE cannot have the same accounting period of its head office.


The FIE and joint stock companies must draw up their own balance sheet according to the accounting principles of the PRC and accounting system for Business Enterprises. The MOF (Minister of Finances) issues accounting rules and the rules of the accounting system, used for several industries and branches. In general, the PRC accounting principles correspond to IAS. In the last years, the Chinese government eliminated many differences between the PRC and IAS accounting practices. In February 2006, the MOF published the 38 accounting rules corresponding to IAS principles enforceable from 1st January 2007. Objectivity, competency, pertinency, comparability and reliability must be the bases of the accounting system and must be transferred into the accounting statements. For the balance the following accounting principles must be applied: continuity, coherence, timeliness, competence, and prudence.