Ministry of Finance, Answers to Questions Relevant to the Implementation of the «Enterprise Accounting System»by Foreign Investment Enterprises

Issued: May 26 2002

Main contents: Where the Enterprise Accounting System (the EAS) requires that the equity method shall be applied in the accounting of long-term equity investment instead of the cost method, retrospective adjustment shall be made (Item One). Deferred investment losses that have been credited to long-term prepaid expenses or deferred incomes pursuant to the Ministry of Finance, Relevant Questions in Implementation of «Enterprise Accounting System»by Foreign Investment Enterprises Provisions (the MOF Provisions) may continue to be amortized according to the original amortization schedule but new foreign investments by non-cash assets shall be dealt with in accordance with the EAS (Item Two). As of January 1 2002, all foreign investment enterprises shall have adopted the accounting year prescribed by the PRC, Accounting Law even if the accounting year is different from that of their foreign parent companies (Item Three). As of January 1 2002, all foreign-funded financial enterprises shall have implemented the Financial Enterprise Accounting System (Item Five). With regard to allocation to welfare expenses, the MOF Provisions and the State Administration of Taxation, Tax Treatment of the Allocations of Staff and Workers' Collective Welfare Expenses Other Than the Three Funds Such as Medical Insurance by Foreign Investment Enterprises and Foreign Enterprises for Their Employees Circular shall be complied with (Item Six). For foreign enterprises that use foreign currencies as accounting base currency, the Answers also stipulate the accounting treatment of the differences arising from the conversion of foreign currencies (Item Seven).
Related legislation: Enterprise Accounting System, 2000; PRC, Accounting Law (Revised), 31 Oct 1999, CLP 2000 No.1 p4; Ministry of Finance, Questions Relevant to the Implementation of the«Enterprise Accounting System» by Foreign Investment Enterprises Provisions, Nov 29 2001 and State Administration of Taxation, Tax Treatment of the Allocations of Staff and Workers' Collective Welfare Expenses Other Than the Three Funds Such as Medical Insurance by Foreign Investment Enterprises and Foreign Enterprises for Their Employees Circular