Question

Select one of the 5 foreign countries: China, Germany, Japan, Mexico or the UnitedKingdom, and provide a country profile discussing the topics outlined below. In addition, using EDGAR (http://www.sec.gov/edgar.shtml), find the non-U.S. GAAP financial statements for a company from that country.

Prepare a 4-5 page analysis of the country you chose discussing the following:

Compare the accounting profession in your selected country including professional conduct rules

Identify how the accounting standard are set in that country

Identify two financial reporting standards that differ from those of U.S. GAAP

Identify national characteristics unique to the country that influence accounting

For the two financial reporting standards identified in your paper, use Excel to create an applicable supporting schedule that provides an example of the adjustments that would need to be made to your foreign company’s financial statements for it to comply with U.S. GAAP.

There is no more data to add since it is asking to Select one of the 5 foreign countries: China, Germany, Japan, Mexico or the UnitedKingdom, and provide a country profile and provide the information requested in the assignment.

Answer 1

CHINA is the world’s most populous country. It has a continuous culture stretching back nearly 4,000 years and originated many foundations of the modern world.

CHINA socialist market economy is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity according to the IMF.

China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years.

CHINA ‘S ACCOUNTING PROFESSION

The accountancy profession was established in china in 1918 along with china’s economic reforms and opening up policies, the accountancy profession was revitalized and reconstructed and grew steadily. Ith over 30 years of development and growth, the accountancy profession in china is now a widely recognized and respectable profession. Accountants are an important link in building china’s vigorous economy and they are entrusted to safeguard the public interest.

The Chinese institute of certified public accountants or CICPA is a professional accounting organization based in Beijing with oversight responsibility for accountants in china.

The Chinese institute of certified public accountants is an organization under the guidance of the ministry of finance and the state council. Founded in November 1988 in accordance with the law of the people’s republic of china for certified public accountants and the regulations for the registration and administration of social organizations, the CICPA exercises the professional management and service functions by virtue of the powers vested in the law of the people’s republic of china for certified public accountants, stipulated by the charter of the Chinese institute of certified public accountants and the duties assigned by the ministry of finance.

PROFESSIONL CONDUCT RULES

Professional integrity is highly important to CICPA and the institute explore ways to increase credibility of the profession. In 2002 putting forward building integrity in developing the profession, CICPA formulated guidance and released Outline for Building Integrity of the accounting profession. Today relevant information of all Chinese accounting firms and CPAs are online, transparent and accessible for public to review and scrutinize.

Professional ethics is another core value of CICPA as it builds integrity. From 1992, CICPA released the tentative version of Code of Ethics, then the Principles of Code of Ethics and Guidance for Non-Practicing Members of CICPA.

In 2014, CICPA released Q&As related to Code of Ethics for Chinese CPAs, covering over 30 specific questions, including concept, framework, firm networks, requirements of audit and assurance service on independence, Code of Ethics for Non-Practicing Members and so on. Its detailed guidance and tips help CPAs properly understand the code of ethics and solve problems encountered in practice

CHINESE ACCOUNTING STANDARDS

Chinese accounting standards are the accounting rules used in mainland China. As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.

Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of the industry. Therefore, unlike Western accounting standards, they were less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet, Chinese Accounting Standards did not include an accounting of the debts that a corporation holds, and were less suitable for management control tan for accounting for tax purposes.

This system of accounting was widely considered to be unsuitable for managing corporations in a market economy. In 2006, the Chinese government introduced a revised accounting law. This was the fruit of considerable discussion and protracted debate, involving the Ministry of Finance, members of the International Accounting Standards Board (IASB) and representatives of some Chinese firms.This revised law marked a large step forward for the continuing integration of world trade and capital markets, with China adopting a significant number of the accounting standards laid out by the International Accounting Standards Board. The old Chinese Accounting Standards (CAS) were largely replaced by the International Financial Reporting Standards

This has proven to be a massive undertaking. As a consequence Chinese companies who offers shares for sale in the United States used to be required to prepare three sets of statements, one using China GAAP, one using IFRS and one using US GAAP.

TWO FINANCIAL REPORTING STANDARDS THAT DIFFERS FROM US GAAP

Fixed assets capitalization threshold

In China GAAP, fixed assets related to production and operations of a company with a service life of more than a year are capitalized and other fixed assets having a value of more than 2000 Yuan with an estimated life of more than 2 years should be capitalized.

In US GAAP, companies have the liberty to determine their own materiality threshold above which expenditure is capitalized.

Borrowing costs

As part of cost of construction of a tangible fixed asset, borrowing costs on project specific borrowings should be capitalized as far as China GAAP is concerned.

In US GAAP, interest expense during construction depending upon the amount of investments in a project gets capitalized irrespective of source of financing but is limited to the amount of interest expenditure incurred.

NATIONAL CHARACTERISTICS

The general accounting principles or concepts employed in China's accounting regulations include accuracy, completeness, consistency, comparability, timeliness, materiality, accrual basis, matching, prudence, substance over form and going concern. By and large, the principles mirror those of IAS. Other major features of these regulations are as follows:

• The historical cost convention is prescribed. Assets are required to be recorded at purchase cost (less any necessary impairment provision) and revaluations are strictly prohibited except when allowed by other State provisions.
• The concept of fair market value is not commonly used due to the limited existence of open markets.
• These regulations also require companies to use the calendar year, that is January 1 to December 31, as their financial year.
• The double-entry bookkeeping method should be adopted. Records in accounts and books have to be made in the lawful currency of the PRC. Transactions and balances denominated in foreign currencies have to be converted into Renminbi at the official rate, which may differ from the current market rate. All records and balances of transactions made in foreign currencies and the exchange rate used must be maintained for reference.
• A clause in these regulations specifically requires the appropriation of a collective Welfare Fund and a Statutory Reserve Fund from profit after tax.

CHINA is the world’s most populous country. It has a continuous culture stretching back nearly 4,000 years and originated many foundations of the modern world.

CHINA socialist market economy is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity according to the IMF.

China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years.

CHINA ‘S ACCOUNTING PROFESSION

The accountancy profession was established in china in 1918 along with china’s economic reforms and opening up policies, the accountancy profession was revitalized and reconstructed and grew steadily. Ith over 30 years of development and growth, the accountancy profession in china is now a widely recognized and respectable profession. Accountants are an important link in building china’s vigorous economy and they are entrusted to safeguard the public interest.

The Chinese institute of certified public accountants or CICPA is a professional accounting organization based in Beijing with oversight responsibility for accountants in china.

The Chinese institute of certified public accountants is an organization under the guidance of the ministry of finance and the state council. Founded in November 1988 in accordance with the law of the people’s republic of china for certified public accountants and the regulations for the registration and administration of social organizations, the CICPA exercises the professional management and service functions by virtue of the powers vested in the law of the people’s republic of china for certified public accountants, stipulated by the charter of the Chinese institute of certified public accountants and the duties assigned by the ministry of finance.

PROFESSIONL CONDUCT RULES

Professional integrity is highly important to CICPA and the institute explore ways to increase credibility of the profession. In 2002 putting forward building integrity in developing the profession, CICPA formulated guidance and released Outline for Building Integrity of the accounting profession. Today relevant information of all Chinese accounting firms and CPAs are online, transparent and accessible for public to review and scrutinize.

Professional ethics is another core value of CICPA as it builds integrity. From 1992, CICPA released the tentative version of Code of Ethics, then the Principles of Code of Ethics and Guidance for Non-Practicing Members of CICPA.

In 2014, CICPA released Q&As related to Code of Ethics for Chinese CPAs, covering over 30 specific questions, including concept, framework, firm networks, requirements of audit and assurance service on independence, Code of Ethics for Non-Practicing Members and so on. Its detailed guidance and tips help CPAs properly understand the code of ethics and solve problems encountered in practice

CHINESE ACCOUNTING STANDARDS

Chinese accounting standards are the accounting rules used in mainland China. As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.

Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of the industry. Therefore, unlike Western accounting standards, they were less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet, Chinese Accounting Standards did not include an accounting of the debts that a corporation holds, and were less suitable for management control tan for accounting for tax purposes.

This system of accounting was widely considered to be unsuitable for managing corporations in a market economy. In 2006, the Chinese government introduced a revised accounting law. This was the fruit of considerable discussion and protracted debate, involving the Ministry of Finance, members of the International Accounting Standards Board (IASB) and representatives of some Chinese firms.This revised law marked a large step forward for the continuing integration of world trade and capital markets, with China adopting a significant number of the accounting standards laid out by the International Accounting Standards Board. The old Chinese Accounting Standards (CAS) were largely replaced by the International Financial Reporting Standards

This has proven to be a massive undertaking. As a consequence Chinese companies who offers shares for sale in the United States used to be required to prepare three sets of statements, one using China GAAP, one using IFRS and one using US GAAP.

TWO FINANCIAL REPORTING STANDARDS THAT DIFFERS FROM US GAAP

Fixed assets capitalization threshold

In China GAAP, fixed assets related to production and operations of a company with a service life of more than a year are capitalized and other fixed assets having a value of more than 2000 Yuan with an estimated life of more than 2 years should be capitalized.

In US GAAP, companies have the liberty to determine their own materiality threshold above which expenditure is capitalized.

Borrowing costs

As part of cost of construction of a tangible fixed asset, borrowing costs on project specific borrowings should be capitalized as far as China GAAP is concerned.

In US GAAP, interest expense during construction depending upon the amount of investments in a project gets capitalized irrespective of source of financing but is limited to the amount of interest expenditure incurred.

NATIONAL CHARACTERISTICS

The general accounting principles or concepts employed in China's accounting regulations include accuracy, completeness, consistency, comparability, timeliness, materiality, accrual basis, matching, prudence, substance over form and going concern. By and large, the principles mirror those of IAS. Other major features of these regulations are as follows:

• The historical cost convention is prescribed. Assets are required to be recorded at purchase cost (less any necessary impairment provision) and revaluations are strictly prohibited except when allowed by other State provisions.
• The concept of fair market value is not commonly used due to the limited existence of open markets.
• These regulations also require companies to use the calendar year, that is January 1 to December 31, as their financial year.
• The double-entry bookkeeping method should be adopted. Records in accounts and books have to be made in the lawful currency of the PRC. Transactions and balances denominated in foreign currencies have to be converted into Renminbi at the official rate, which may differ from the current market rate. All records and balances of transactions made in foreign currencies and the exchange rate used must be maintained for reference.
• A clause in these regulations specifically requires the appropriation of a collective Welfare Fund and a Statutory Reserve Fund from profit after tax.

CHINA is the world’s most populous country. It has a continuous culture stretching back nearly 4,000 years and originated many foundations of the modern world.

CHINA socialist market economy is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity according to the IMF.

China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years.

CHINA ‘S ACCOUNTING PROFESSION

The accountancy profession was established in china in 1918 along with china’s economic reforms and opening up policies, the accountancy profession was revitalized and reconstructed and grew steadily. Ith over 30 years of development and growth, the accountancy profession in china is now a widely recognized and respectable profession. Accountants are an important link in building china’s vigorous economy and they are entrusted to safeguard the public interest.

The Chinese institute of certified public accountants or CICPA is a professional accounting organization based in Beijing with oversight responsibility for accountants in china.

The Chinese institute of certified public accountants is an organization under the guidance of the ministry of finance and the state council. Founded in November 1988 in accordance with the law of the people’s republic of china for certified public accountants and the regulations for the registration and administration of social organizations, the CICPA exercises the professional management and service functions by virtue of the powers vested in the law of the people’s republic of china for certified public accountants, stipulated by the charter of the Chinese institute of certified public accountants and the duties assigned by the ministry of finance.

PROFESSIONL CONDUCT RULES

Professional integrity is highly important to CICPA and the institute explore ways to increase credibility of the profession. In 2002 putting forward building integrity in developing the profession, CICPA formulated guidance and released Outline for Building Integrity of the accounting profession. Today relevant information of all Chinese accounting firms and CPAs are online, transparent and accessible for public to review and scrutinize.

Professional ethics is another core value of CICPA as it builds integrity. From 1992, CICPA released the tentative version of Code of Ethics, then the Principles of Code of Ethics and Guidance for Non-Practicing Members of CICPA.

In 2014, CICPA released Q&As related to Code of Ethics for Chinese CPAs, covering over 30 specific questions, including concept, framework, firm networks, requirements of audit and assurance service on independence, Code of Ethics for Non-Practicing Members and so on. Its detailed guidance and tips help CPAs properly understand the code of ethics and solve problems encountered in practice

CHINESE ACCOUNTING STANDARDS

Chinese accounting standards are the accounting rules used in mainland China. As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.

Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of the industry. Therefore, unlike Western accounting standards, they were less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet, Chinese Accounting Standards did not include an accounting of the debts that a corporation holds, and were less suitable for management control tan for accounting for tax purposes.

This system of accounting was widely considered to be unsuitable for managing corporations in a market economy. In 2006, the Chinese government introduced a revised accounting law. This was the fruit of considerable discussion and protracted debate, involving the Ministry of Finance, members of the International Accounting Standards Board (IASB) and representatives of some Chinese firms.This revised law marked a large step forward for the continuing integration of world trade and capital markets, with China adopting a significant number of the accounting standards laid out by the International Accounting Standards Board. The old Chinese Accounting Standards (CAS) were largely replaced by the International Financial Reporting Standards

This has proven to be a massive undertaking. As a consequence Chinese companies who offers shares for sale in the United States used to be required to prepare three sets of statements, one using China GAAP, one using IFRS and one using US GAAP.

TWO FINANCIAL REPORTING STANDARDS THAT DIFFERS FROM US GAAP

Fixed assets capitalization threshold

In China GAAP, fixed assets related to production and operations of a company with a service life of more than a year are capitalized and other fixed assets having a value of more than 2000 Yuan with an estimated life of more than 2 years should be capitalized.

In US GAAP, companies have the liberty to determine their own materiality threshold above which expenditure is capitalized.

Borrowing costs

As part of cost of construction of a tangible fixed asset, borrowing costs on project specific borrowings should be capitalized as far as China GAAP is concerned.

In US GAAP, interest expense during construction depending upon the amount of investments in a project gets capitalized irrespective of source of financing but is limited to the amount of interest expenditure incurred.

NATIONAL CHARACTERISTICS

The general accounting principles or concepts employed in China's accounting regulations include accuracy, completeness, consistency, comparability, timeliness, materiality, accrual basis, matching, prudence, substance over form and going concern. By and large, the principles mirror those of IAS. Other major features of these regulations are as follows:

• The historical cost convention is prescribed. Assets are required to be recorded at purchase cost (less any necessary impairment provision) and revaluations are strictly prohibited except when allowed by other State provisions.
• The concept of fair market value is not commonly used due to the limited existence of open markets.
• These regulations also require companies to use the calendar year, that is January 1 to December 31, as their financial year.
• The double-entry bookkeeping method should be adopted. Records in accounts and books have to be made in the lawful currency of the PRC. Transactions and balances denominated in foreign currencies have to be converted into Renminbi at the official rate, which may differ from the current market rate. All records and balances of transactions made in foreign currencies and the exchange rate used must be maintained for reference.
• A clause in these regulations specifically requires the appropriation of a collective Welfare Fund and a Statutory Reserve Fund from profit after tax.

CHINA is the world’s most populous country. It has a continuous culture stretching back nearly 4,000 years and originated many foundations of the modern world.

CHINA socialist market economy is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity according to the IMF.

China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years.

CHINA ‘S ACCOUNTING PROFESSION

The accountancy profession was established in china in 1918 along with china’s economic reforms and opening up policies, the accountancy profession was revitalized and reconstructed and grew steadily. Ith over 30 years of development and growth, the accountancy profession in china is now a widely recognized and respectable profession. Accountants are an important link in building china’s vigorous economy and they are entrusted to safeguard the public interest.

The Chinese institute of certified public accountants or CICPA is a professional accounting organization based in Beijing with oversight responsibility for accountants in china.

The Chinese institute of certified public accountants is an organization under the guidance of the ministry of finance and the state council. Founded in November 1988 in accordance with the law of the people’s republic of china for certified public accountants and the regulations for the registration and administration of social organizations, the CICPA exercises the professional management and service functions by virtue of the powers vested in the law of the people’s republic of china for certified public accountants, stipulated by the charter of the Chinese institute of certified public accountants and the duties assigned by the ministry of finance.

PROFESSIONL CONDUCT RULES

Professional integrity is highly important to CICPA and the institute explore ways to increase credibility of the profession. In 2002 putting forward building integrity in developing the profession, CICPA formulated guidance and released Outline for Building Integrity of the accounting profession. Today relevant information of all Chinese accounting firms and CPAs are online, transparent and accessible for public to review and scrutinize.

Professional ethics is another core value of CICPA as it builds integrity. From 1992, CICPA released the tentative version of Code of Ethics, then the Principles of Code of Ethics and Guidance for Non-Practicing Members of CICPA.

In 2014, CICPA released Q&As related to Code of Ethics for Chinese CPAs, covering over 30 specific questions, including concept, framework, firm networks, requirements of audit and assurance service on independence, Code of Ethics for Non-Practicing Members and so on. Its detailed guidance and tips help CPAs properly understand the code of ethics and solve problems encountered in practice

CHINESE ACCOUNTING STANDARDS

Chinese accounting standards are the accounting rules used in mainland China. As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.

Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of the industry. Therefore, unlike Western accounting standards, they were less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet, Chinese Accounting Standards did not include an accounting of the debts that a corporation holds, and were less suitable for management control tan for accounting for tax purposes.

This system of accounting was widely considered to be unsuitable for managing corporations in a market economy. In 2006, the Chinese government introduced a revised accounting law. This was the fruit of considerable discussion and protracted debate, involving the Ministry of Finance, members of the International Accounting Standards Board (IASB) and representatives of some Chinese firms.This revised law marked a large step forward for the continuing integration of world trade and capital markets, with China adopting a significant number of the accounting standards laid out by the International Accounting Standards Board. The old Chinese Accounting Standards (CAS) were largely replaced by the International Financial Reporting Standards

This has proven to be a massive undertaking. As a consequence Chinese companies who offers shares for sale in the United States used to be required to prepare three sets of statements, one using China GAAP, one using IFRS and one using US GAAP.

TWO FINANCIAL REPORTING STANDARDS THAT DIFFERS FROM US GAAP

Fixed assets capitalization threshold

In China GAAP, fixed assets related to production and operations of a company with a service life of more than a year are capitalized and other fixed assets having a value of more than 2000 Yuan with an estimated life of more than 2 years should be capitalized.

In US GAAP, companies have the liberty to determine their own materiality threshold above which expenditure is capitalized.

Borrowing costs

As part of cost of construction of a tangible fixed asset, borrowing costs on project specific borrowings should be capitalized as far as China GAAP is concerned.

In US GAAP, interest expense during construction depending upon the amount of investments in a project gets capitalized irrespective of source of financing but is limited to the amount of interest expenditure incurred.

NATIONAL CHARACTERISTICS

The general accounting principles or concepts employed in China's accounting regulations include accuracy, completeness, consistency, comparability, timeliness, materiality, accrual basis, matching, prudence, substance over form and going concern. By and large, the principles mirror those of IAS. Other major features of these regulations are as follows:

• The historical cost convention is prescribed. Assets are required to be recorded at purchase cost (less any necessary impairment provision) and revaluations are strictly prohibited except when allowed by other State provisions.
• The concept of fair market value is not commonly used due to the limited existence of open markets.
• These regulations also require companies to use the calendar year, that is January 1 to December 31, as their financial year.
• The double-entry bookkeeping method should be adopted. Records in accounts and books have to be made in the lawful currency of the PRC. Transactions and balances denominated in foreign currencies have to be converted into Renminbi at the official rate, which may differ from the current market rate. All records and balances of transactions made in foreign currencies and the exchange rate used must be maintained for reference.
• A clause in these regulations specifically requires the appropriation of a collective Welfare Fund and a Statutory Reserve Fund from profit after tax.

CHINA is the world’s most populous country. It has a continuous culture stretching back nearly 4,000 years and originated many foundations of the modern world.

CHINA socialist market economy is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity according to the IMF.

China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years.

CHINA ‘S ACCOUNTING PROFESSION

The accountancy profession was established in china in 1918 along with china’s economic reforms and opening up policies, the accountancy profession was revitalized and reconstructed and grew steadily. Ith over 30 years of development and growth, the accountancy profession in china is now a widely recognized and respectable profession. Accountants are an important link in building china’s vigorous economy and they are entrusted to safeguard the public interest.

The Chinese institute of certified public accountants or CICPA is a professional accounting organization based in Beijing with oversight responsibility for accountants in china.

The Chinese institute of certified public accountants is an organization under the guidance of the ministry of finance and the state council. Founded in November 1988 in accordance with the law of the people’s republic of china for certified public accountants and the regulations for the registration and administration of social organizations, the CICPA exercises the professional management and service functions by virtue of the powers vested in the law of the people’s republic of china for certified public accountants, stipulated by the charter of the Chinese institute of certified public accountants and the duties assigned by the ministry of finance.

PROFESSIONL CONDUCT RULES

Professional integrity is highly important to CICPA and the institute explore ways to increase credibility of the profession. In 2002 putting forward building integrity in developing the profession, CICPA formulated guidance and released Outline for Building Integrity of the accounting profession. Today relevant information of all Chinese accounting firms and CPAs are online, transparent and accessible for public to review and scrutinize.

Professional ethics is another core value of CICPA as it builds integrity. From 1992, CICPA released the tentative version of Code of Ethics, then the Principles of Code of Ethics and Guidance for Non-Practicing Members of CICPA.

In 2014, CICPA released Q&As related to Code of Ethics for Chinese CPAs, covering over 30 specific questions, including concept, framework, firm networks, requirements of audit and assurance service on independence, Code of Ethics for Non-Practicing Members and so on. Its detailed guidance and tips help CPAs properly understand the code of ethics and solve problems encountered in practice

CHINESE ACCOUNTING STANDARDS

Chinese accounting standards are the accounting rules used in mainland China. As of February 2010, the Chinese accounting standard systems is composed of Basic Standard, 38 specific standards and application guidance.

Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of the industry. Therefore, unlike Western accounting standards, they were less a tool of profit and loss, but an inventory of assets available to a company. In contrast to a Western balance sheet, Chinese Accounting Standards did not include an accounting of the debts that a corporation holds, and were less suitable for management control tan for accounting for tax purposes.

This system of accounting was widely considered to be unsuitable for managing corporations in a market economy. In 2006, the Chinese government introduced a revised accounting law. This was the fruit of considerable discussion and protracted debate, involving the Ministry of Finance, members of the International Accounting Standards Board (IASB) and representatives of some Chinese firms.This revised law marked a large step forward for the continuing integration of world trade and capital markets, with China adopting a significant number of the accounting standards laid out by the International Accounting Standards Board. The old Chinese Accounting Standards (CAS) were largely replaced by the International Financial Reporting Standards

This has proven to be a massive undertaking. As a consequence Chinese companies who offers shares for sale in the United States used to be required to prepare three sets of statements, one using China GAAP, one using IFRS and one using US GAAP.

TWO FINANCIAL REPORTING STANDARDS THAT DIFFERS FROM US GAAP

Fixed assets capitalization threshold

In China GAAP, fixed assets related to production and operations of a company with a service life of more than a year are capitalized and other fixed assets having a value of more than 2000 Yuan with an estimated life of more than 2 years should be capitalized.

In US GAAP, companies have the liberty to determine their own materiality threshold above which expenditure is capitalized.

Borrowing costs

As part of cost of construction of a tangible fixed asset, borrowing costs on project specific borrowings should be capitalized as far as China GAAP is concerned.

In US GAAP, interest expense during construction depending upon the amount of investments in a project gets capitalized irrespective of source of financing but is limited to the amount of interest expenditure incurred.

NATIONAL CHARACTERISTICS

The general accounting principles or concepts employed in China's accounting regulations include accuracy, completeness, consistency, comparability, timeliness, materiality, accrual basis, matching, prudence, substance over form and going concern. By and large, the principles mirror those of IAS. Other major features of these regulations are as follows:

• The historical cost convention is prescribed. Assets are required to be recorded at purchase cost (less any necessary impairment provision) and revaluations are strictly prohibited except when allowed by other State provisions.
• The concept of fair market value is not commonly used due to the limited existence of open markets.
• These regulations also require companies to use the calendar year, that is January 1 to December 31, as their financial year.
• The double-entry bookkeeping method should be adopted. Records in accounts and books have to be made in the lawful currency of the PRC. Transactions and balances denominated in foreign currencies have to be converted into Renminbi at the official rate, which may differ from the current market rate. All records and balances of transactions made in foreign currencies and the exchange rate used must be maintained for reference.
• A clause in these regulations specifically requires the appropriation of a collective Welfare Fund and a Statutory Reserve Fund from profit after tax.