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14.1. Books and Records

China law stipulates that companies must keep three kinds of primary accounting records: journals, a general ledger and subsidiary ledgers, as well as basic financial statements such as balance sheet, income statement (profit and loss account), statement of changes in equity, cash flow statement, and notes to financial statements. Computerized accounting systems can be regarded as the venture’s accounting records.

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

Books and records should be recorded in CNY, unless agreed otherwise by the relevant tax authorities. If a foreign currency is used, the financial statements must be converted into CNY at year-end for the preparation and auditing of the annual financial statements.

Accrual basis of accounting should be used in performing recognition, measurement and reporting for accounting purposes. All income realized and expenses incurred or attributable to the current period should be recognized as income or expenses in the current period regardless of when the income is actually received or expenses are paid.

Enterprises are also required to disclose the following information related to its parent and subsidiaries in the notes, irrespective of whether there have been transactions with those related parties:

  • Names of the enterprise’s parent and subsidiaries.
  • Nature of business of the subsidiaries, place of registration and registered capital (or paid-in capital or share capital) and changes therein.
  • Proportion of shareholdings and voting power of the parent over the enterprise, and that of the enterprise over the subsidiaries.
  • Where there have been related- party transactions between an enterprise and its related parties, the enterprise shall disclose the nature of the related- party relationships, the types of transactions and the essential elements of the transactions in the notes.

Account books, vouchers, statements, tax payment certificates and other relevant tax records shall be kept by taxpayers and withholding agents for a period of at least 10 years.