Understanding statutory audits in China.

Statutory audits play a key role in financial transparency for businesses operating in China. According to the People’s Republic of China (PRC) Company Law and relevant legislation, all Foreign-Invested Enterprises (FIEs) prepare annual financial statements, including balance sheets, income statements and cash flow statements for their annual PRC statutory audit.

This guide outlines the statutory audit process in China, covering the key preparation steps, regulatory requirements and post-audit procedures to help companies plan their annual compliance cycle effectively.

Statutory annual audit preparation

Preparing for the annual statutory audit involves more than assembling financial documents. Companies that plan ahead, assign clear ownership of the process and conduct a preliminary review before the formal audit begins are generally better prepared to meet the April deadline and avoid delays.

Conducting a preliminary audit

Before the annual audit, companies usually conduct a preliminary audit to strategise the audit process, identify potential issues and allow companies to address shortcomings.

Typically initiated in November or December, the preliminary audit involves auditors assessing risks and reviewing internal controls. This process includes evaluating the company’s internal and external environment in collaboration with key personnel, such as financial and operational teams. Completing a preliminary audit helps reduce the substantive audit workload during the annual audit.

Regulatory requirements for FIEs

Foreign-Invested Enterprises (FIEs) in China, including Wholly Foreign-Owned Enterprises (WFOEs), Joint Ventures (JVs) and Representative Offices (ROs), comply with strict financial reporting regulations.

FIEs are governed by the Chinese Accounting Standards for Business Enterprises (ASBEs) and the Accounting Regulations for Business Enterprises (ARBEs), collectively referred to as PRC GAAP. These standards apply equally to domestic and foreign enterprises, with no fundamental differences in requirements. Each FIE and its legally responsible person takes full responsibility for the financial statements’ truthfulness, legitimacy and completeness.

The objective of a statutory audit for foreign-invested companies is for the Certified Public Accountant (CPA) to express an independent opinion on whether the financial statements are fairly presented in all material respects and the company’s financial position at year-end. This includes assessing the company’s operations and cash flows for the year, following requirements of both the ASBEs and the ARBEs.

China’s ongoing digitisation of financial reporting is also relevant at this stage. The Ministry of Finance has been promoting the nationwide adoption of standardised electronic voucher accounting data, covering how vouchers are processed, recorded and archived. While adoption remains voluntary for now, accounting software is expected to be upgraded to support electronic voucher standards by 2027. FIEs that maintain structured digital records from the outset are generally better placed when the statutory audit begins.

Audit report standards

The standard annual audit report for FIEs includes the following:

• Audit report (opinion page)
• Financial statements, including:
• Balance sheet
• Income statements
• Cash flow statements
• Change in equity statement
• Notes to the financial statements

When conducting the statutory audit, the CPA shall observe the Chinese Independent Auditing Standards (CIAS) promulgated by the Chinese Institute of Certified Public Accountants (CICPA). The annual compliance procedure begins with the company’s annual audit. Companies generally aim to have the audit report ready before the end of April, which allows sufficient time to meet the CIT reconciliation deadline of 31 May.

Recent amendments to China’s Company Law have also introduced a requirement for CPAs to submit electronic audit reports directly to the State Administration for Market Regulation (SAMR). This change strengthens oversight of capital verification and affects how audit outputs are formally filed.

Tax reconciliation filing

The next step following the statutory audit is conducting an annual corporate income tax (CIT) reconciliation, also known as annual CIT filing, by 31 May each year.

The State Taxation Administration (STA) oversees various taxes in China, though only CIT requires an annual reconciliation with the tax bureau. The standard CIT rate is 25% on profits, although this rate can vary based on the company’s size and industry.

The annual CIT reconciliation confirms full tax payment for the previous year and assesses whether additional tax is due or a refund is needed. Upon completing this step, foreign companies can distribute profit and repatriate.

Annual reporting procedure

Once the annual audit report and CIT reconciliation are finalised, companies submit the annual report to various government bureaus by 30 June each year. This process combines local Administration of Market Regulation reporting into a many-in-one annual report and is submitted via the National Enterprise Credit Information Publicity System (NECIPS).

Previously, companies had to report separately to entities such as:

• The State Administration for Market Regulation (SAMR)
• The Ministry of Commerce (MOFCOM)
• The State Administration of Foreign Exchange (SAFE)
• The Finance and Customs Authorities (for trading companies).

The annual report covers information such as:

• Basic company details
• Investor profile
• Equity transfer information for limited liability companies
• Investment details for establishing or purchasing equity
• Balance sheet data
• Warranties and guarantees provided
• Operational data, including revenue, taxable income, net profit

Beneficial ownership filing

Alongside the annual reporting cycle, FIEs are subject to a beneficial ownership filing requirement administered through the enterprise registration system. Companies are required to disclose information on their ultimate actual controller, defined under the PRC Company Law as any person who can exert actual control over a company through investment relationships, agreements or other arrangements. Changes to this information must be reported within 20 working days of the change occurring. Exemptions apply to certain entities with simple equity structures, including those with registered capital not exceeding RMB 10 million where all shareholders are natural persons and no external party exercises control through non-equity means. Companies that are uncertain about their obligations under this requirement should seek local guidance to confirm their position.

Conclusion

The statutory audit is the starting point for China’s annual compliance cycle, and how well it goes tends to reflect how consistently records have been maintained throughout the year. With greater coordination between tax authorities, auditors and regulatory bodies, accuracy and timing matter more than they once did.

The audit report is also a prerequisite for profit repatriation, meaning delays at this stage can have downstream consequences for dividend payments. For a full overview of how the audit fits into the broader compliance calendar, see the guide to annual audit, tax reconciliation and inspection in China.

How Acclime can help with conducting statutory audits in China

Acclime is a licensed CPA firm with deep expertise in China’s accounting and regulatory requirements. Our team prepares audit reports, manages corporate income tax reconciliation and handles accounting compliance to meet PRC requirements. From coordinating the preliminary audit through to final sign-off, we work alongside your finance team to keep the process on track and the deadlines met.

By working with Acclime, you can reduce the risk of delays, ensure filings are consistent across authorities and approach the full annual compliance cycle with confidence. Contact us to discuss your statutory audit requirements and find out how we can support your China operations.