Framework and Implementation of
Chinese Accounting Standards
System for Business Enterprises
Li Hongxia
Accounting Regulatory Department
Ministry of Finance, P.R. China
May 22, 2006
1
Main Contents
 The
Framework of Chinese Accounting
Standards for Business Enterprises (CASs)
 The Characteristics of Chinese Accounting
Standards for Business Enterprises (CASs)
 Experience Gained from the Development of
CASs
 Implementation of CASs
2
Background
On 15 Feb, 2006, Chinese MoF released
1 Basic Standard and 38 specific
standards, effective on Jan. 1, 2007
first in listed companies and extended
to large and medium-sized enterprises
gradually
3
Background
 Marks
the official establishment of Chinese
Accounting Standards System for Business
Enterprises
 Suits the development process of market
economy of China
 Achieves convergence with IFRSs in terms of
principles
on
accounting
recognition,
measurement and reporting
 Prescribes special provisions for transactions
given domestic situations, eg., related party
disclosures
----Result of experiences summarized from Chinese
economic and accounting reform and cooperation
between CMoF and IASB
4
Background
 Standardize business behaviors
 Enhance the quality of accounting
information
 Reduce cost of raising capital
 Improve corporate governance structure
 Facilitate business enterprises to
implement “coming in” and “going out”
strategy
5
I. Framework and Characteristics
and
Chinese
Accounting
Standards
for
Business
Enterprises (CASs)
6
The Framework of
Chinese Accounting Standards System(1)
 The Chinese Accounting Standards System
for Business Enterprises
Consists of 1 Basic Standard and 38 specific
standards which are divided into two levels:
 First level: the Basic Standard
 Second level: specific standards
7
The Framework of
Chinese Accounting Standards System(2)

The Framework of Chinese Accounting Standards System
Basic
Standard
First Level
Objectives
of financial
reporting
Underlying
assumptions
of accounting
Second Level
Accounting standards
for general businesses
Characteristics
of accounting
information
Recognition&
measurement
principles of
accounting elements
Specific
standards
Accounting standards
for specific businesses
in special industries
Reporting
standards
8
The Framework of
Chinese Accounting Standards System(3)
 Basic Standard
 Plays a leading role
 Mainly stipulates the objectives of financial
reporting, recognition and measurement
principles, underlying assumptions of accounting,
primary characteristics of accounting information,
recognition, measurement of accounting
elements
 It is equivalent to the IASB’s Framework for the
Preparation and Presentation of Financial
Statements and the FASB’s Concept Statements
9
The Framework of
Chinese Accounting Standards System(4)
 Specific Standards
Formulated
Standard
according
to
the
Basic
Divided into three categories – accounting
standards
for
general
businesses,
accounting
standards
for
specific
businesses in special industries and
reporting standards
10
The Framework of
Chinese Accounting Standards System(5)
 Accounting Standards for General Businesses
 Mainly
stipulate
recognition
and
measurement
requirements for general economic businesses that are
broadly applicable to all kinds of enterprises
 Include:
Inventory, Fixed Assets,
Investment Property, Leases,
Revenues,
Employee
Benefits,
Share-based
Compensation, Income Taxes, Foreign Currency
Translation, Borrowing Costs, Investment, Corporate
Annuity, Earnings Per Share, Intangible Assets,
Impairment of Assets, Contingencies, Recognition and
Measurement of Financial Instruments, Transfer of Financial
Assets, Hedging Transaction, Presentation and Disclosure of
Financial Instruments, and Business Combinations, etc.
11
The Framework of
Chinese Accounting Standards System(6)
 Accounting Standards for Specific
Businesses
Mainly stipulate recognition and
measurement requirements of specific
businesses in special industries
Include:
Oil and Natural Gas Extraction, Biological
Assets, Insurance Contract and Reinsurance
Contract , etc.
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The Framework of
Chinese Accounting Standards System(7)
 Reporting Standards
 Mainly stipulate formats and contents for generalpurpose statements that are widely applicable to
all kinds of enterprises
 Include:
Presentation of Financial Statements, Cash Flow
Statements, Consolidated Financial Statements,
Interim Financial Reporting, Segment Reporting,
Related-party Disclosures , Earnings per share etc.
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II. The Characteristics of
Chinese Accounting
Standards System for
Business Enterprises (CASs)
14
Characteristics of CASs (1)
 Achieved substantial convergence with IFRSs
 Except very few differences in related party disclosure
and reversal of asset impairment, it has achieved
substantial convergence with IFRSs
 JS signed by CASC and IASB identified: convergence
with IFRSs was one of fundamental objectives to set
CASs with an attempt to bring the same result for those
applying CASs as those applying IFRSs
 IASB Chairman commented at the Release Conference
of CASs “ CASs realized substantial convergence with
IFRSs”
 A successful cooperation and attempt between CMoF
and IASB in promoting international convergence
15
proactively
Characteristics of CASs (2)
 Suits the development process of market economy of
China
 Enterprises restructuring frequently occurs. Employee stock option




piloted. Rapid development of financial and insurance market make it
increasingly urgent to guard against and control the financial control
CASs system covers standards for business combination, sharebased payment, recognition and measurement of Financial
instruments, direct and re-insurance contracts etc.
Prescribes not only accounting for business combinations involving
entities not under common control, but also those under common
control, being the former identical to IFRS 3, while the latter a
complement to IFRS 3
Share-based payment and derivative financial instruments are
required to recognize in financial statements.
Vigorously promote reform of SOEs and strengthen supervision and
control over financial risk
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Characteristics of CASs (3)
A
logically consistent system,
Standard having legal authority
with
Basic
 The newly issued Basic Standard plays an equivalent role to





Conceptual Framework of IASB. The difference is that It is part
of national administrative regulation, while IASB Framework
does not consist part of so-called IFRSs
Specific standards stipulate based on Basic Standard, which
make CASs system a logically consistent, coherent system
Objective
of
financial
reporting:
reflect
management
accountability and decision making usefulness
Qualitative
characteristics:
reliability,
relevance,
understandability, comparability
Measurement attributes: historical cost, fair value, RC,NRV, PV
Meet the economic development at present and well beyond thus
protect interests of investors and the public
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Characteristics of CASs (4)
 Properly introduced fair value measurement
attribute and break through historical cost
 For
investment property, financial instruments, business
combinations involving entities not under common control,
debt restructuring and non-monetary asset exchange, fair value
is adopted provided certain criteria satisfied. When adopting
fair value to measure investment property, the prerequisite is
the existence of active market and continuing availability of fair
value information regarding the asset
 Introduction
of fair value contributes to the faithful
representation of value of assets and liabilities, timely reflect
the movement of market and thereby realize the objective of
financial reporting
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Characteristics of CASs (5)
 Establishes a complete system of financial reporting
and implement full disclosure principle
 Under CASs system, enterprises are required to prepare, as a
minimum requirement, balance sheet, income statement, cash flow
statement, statement of changes in owner’s equity, and notes
 All subsidiaries are required to incorporate into consolidated
financial statements of the group. Segment information based on
business and geographic locations and interim financial reporting
are also formulated
 These reporting standards implement full disclosure principle and
establish a comprehensive financial reporting system to facilitate
the communication between enterprises, investors and creditors,
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thus increase market efficiency and promote effective supervision.
III. Experiences Gained from
the Development of Chinese
Accounting Standards for
Business Enterprises (CASs)
20
Experiences From Developing CASs (1)
A
good understanding of international
convergence of accounting standards and
implemented consistently during the whole
process
 Convergence is a progress and development
trend of current financial accounting
 Convergence does not mean being identical
word for word.
 Convergence is a bilateral or multilateral
interaction between NSS and IASB
 Convergence is not the terminal but a new
starting point
21
Experiences From Developing CASs (2)
A
sound cooperation and communication
mechanism for achieving convergence has
been established
 Domestically, there are 22 CASC members and 160
consulting experts representing academia, preparers,
analysts, auditors providing technical support to
development.
 Internationally, regular meeting both policy and
working level with IASB
 New appointments in IASCF Trustees and SAC:
President of CICPA and Secretary-General of CASC
 Second a senior staff to IASB to participate in IFRSs
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setting process.
Experiences From Developing CASs (3)
 Substantial
convergence with IFRSs was
highlighted during the development process
 Substantial convergence means that the principles
of recognition, measurement and reporting are same
as those in IFRSs, with the intention to produce
same result in financial statements of enterprises
either applying IFRSs and CASs
 Being a part of national legal system, structure,
style of writing and wording of sentence of CASs
were adapted in a way to comply with the language
style of Chinese legal system and easily understood
by the pratitioners.
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Experiences from Developing CASs (4)
 Special
provisions conforming
situation were formulated
to
domestic
 SOEs that are only under state control but not subject to
control, common control, significant influence are not
regarded as related parties, thus exempt from disclosing
transactions occurring between them. IASB has put IAS
24 revision on its May Board meeting agenda.
 While IFRS 3 is silent on accounting for business
combinations involving entities under common control,
the equivalent CAS provides accounting treatment
applied to this broadly-existent business combinations
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in China
IV. Implementation of Chinese
Accounting Standards for
Business Enterprises (CASs)
25
Implementation of CASs (1)
 Draft and release Implementation Guidance
IG comprises two types of contents:
 Interpretation to standards: mainly focus on the key
points, difficult implementation issues in standards,
coupled with illustrative examples
 Chart of accounts and financial statements: set up a
number of accounts consistent with CASs and
covered different sectors, provide sample format of
financial statements and preparation interpretation
IG is an integral component of CASs system and to be
issued by CMoF by this August
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Implementation of CASs (2)
 Conduct
training
scheduled manner
in
a
planned
and
well
 Training to listed companies, CPA firms and regulatory
departments such as CSRC, CBRC, CIRC etc.
 Training to local financial bureau—branches of MoF,
as mentors in their respective jurisdictions
Purpose: To ensure proper
consistent application of CASs
understanding
and
27
Implementation of CASs (3)
 Select some listed companies to conduct mock
testing before effective date
 Choose some listed companies, jointly with CSRC,
to conduct mock testing prior to implementation to
verify the practicability of CASs system and estimate
the impact on net assets and P/L of companies
 Identify problems that might arise in the first-time
adoption of the System and work out the solutions
and countermeasures as early as possible
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Implementation of CASs (4)
 Coordinate
with regulatory departments to
strengthen supervision over the implementation
of CASs in listed companies
 Strengthen supervision over the implementation with
relevant government departments
 Give full play to the role of auditors in auditing
financial statements applying CASs
 Accelerate setting internal control system within
business enterprises
To ensure smooth transition to CASs system and
implementation of the System in 2007.
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