Understanding China statutory audit.

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Understanding China statutory audit

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According to the People’s Republic of China (PRC) Company law and relevant legislations, all Foreign Invested Enterprises (FIEs), such as Wholly Foreign Owned Enterprises (WFOEs) and Joint Ventures (JVs) are required to prepare their annual financial statements, including balance sheets, income statements and cash flow statements for their annual PRC statutory audit to the Administration of Industry and Commerce (AIC).

Representative Offices (ROs) are also subject to an annual statutory audit. An annual statutory audit can only be performed by a firm of Certified Public Accountants (CPA Firm) registered in the People’s Republic of China. FIEs can only distribute and repatriate their profits or dividends back to their home country after completion of their annual statutory audits and settlement of all relevant tax liabilities. As a licensed CPA firm in China, LehmanBrown’s help will ensure your business is compliant with China’s statutory audit requirements.

The process

FIEs are governed by the Chinese Accounting Standards for Business Enterprises (ASBEs) and the Accounting Regulations for Business Enterprises (ARBEs), collectively referred to as the PRC GAAP. There are no basic differences in requirements and standards between domestic and foreign enterprises. FIE, including their legally responsible person, shall take full responsibility for the truthfulness, legitimacy and completeness of the financial statements.

When performing the statutory audit, the CPA shall observe the Chinese Independent Auditing Standards (CIAS) promulgated by the Chinese Institute of Certified Public Accountants (CICPA). The objective of a statutory audit is for the CPA to express an opinion on whether the financial statements fairly present, in all material respects, the company’s financial position at year-end, the results of its operations and its cash flows for the year, in accordance with the requirements of both ASBEs and ARBEs.

In China, the accounting year is the calendar year, i.e. 1st January to 31st December. After completing the annual statutory audit, the annual filing process, also the Joint Annual Inspection, is required. This process involves the submission of a statutory audit report including but not limited to: the audited financial statements, tax examination report and foreign exchange examination report, to the various government authorities, as required under Chinese legislation. The annual filing process is required for the purpose of renewing business licenses and relevant certificates.

The deadlines

The filing deadlines start from May of the following year.  For example, annual corporate income tax filing, (which uses audited financial figures for the financial year ending 31st  December of the preceding year as the basis before making any tax adjustments), is due by 31st  May of the following year. The statutory filing deadline is indicated in an annual announcement issued by the relevant government authorities, which is normally announced after the year-end. This means that performing the statutory audit is required before the statutory filing deadline.

Below are the government annual inspections which would require the audit report or an extract of financial figures from the audit report:

  • Annual CIT filing – deadline by 31st May
  • AIC Enterprise Credit Information Publicity – deadline by 30th June
  • Customs inspection – deadline by 30th June
  • Joint Annual Report – deadline by 31st August
  • State Administration for Foreign Exchange (SAFE) – deadline by 30th September

*All dates quoted in this article are accurate as of June 2016, and may be subject to change.


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