China's mainland

Accounting Framework

The Accounting Law of the People’s Republic of China of 2017 stipulates the basic legal framework for accounting and corporate financial reporting requirements for companies in China. The law states that all corporate enterprises must prepare and present financial statements in compliance with the unified accounting system of the state. Under the Accounting Law, the Accounting Regulatory Department (ARD) of the Ministry of Finance (MoF) of China is responsible for setting accounting standards for business enterprises and public sectors entities. As part of the accounting standard-setting process, the MoF also established the Chinese Accounting Standards Commission (CASC), which is an advisory body to the government on accounting issues.

The ARD has issued two sets of accounting standards for mandatory application by corporate entities depending on their size. Listed, large, and medium-sized entities apply Accounting Standards for Business Enterprises, which are substantially converged with the IFRS.

Since 2013, small companies may apply the Chinese Accounting Standards for Small Entities, which are based on the 2010 IFRS for SMEs. The CASC has translated the 2015 IFRS and 2010 IFRS for SMEs into simplified Chinese with the permission of the IFRS Foundation; however, the standards are not legally permissible to be directly applied.

The Law of the People’s Republic of China on Regulation of and Supervision over the Banking Industry of 2003, and the Law of the People’s Republic of China on Commercial Banks of 1995 establish additional accounting, auditing, and financial reporting requirements for all banks and similar financial institutions in China that are regulated by the China Banking Regulatory Commission.

Similarly, the Insurance Law of the People’s Republic of China of 1995 and the Securities Law of the People’s Republic of China of 2005 each respectively establish additional accounting, auditing, and financial reporting requirements for all insurance companies in China that are regulated by the Chinese Insurance Regulatory Commission and listed companies, which are regulated by the Chinese Securities Regulatory Commission.

For example, the audited financial statements of the listed companies, listed banks, and similar financial institutions must be published in a printed annual report, on the internet, and in newspapers designated by respective regulators.

Auditing Framework

The Company Law of 2013 and relevant securities regulations establishes audit requirements for listed companies and one-person limited liability companies. The Law on Chinese-Foreign Equity Joint Ventures, Law on Foreign-Owned Enterprises, and Law on Chinese-Foreign Cooperative Enterprises establish audit requirements for foreign investment enterprises. In addition, the Law on Commercial Banks requires commercial banks to release their audited financial statements.

The Chinese Institute of Certified Public Accountants (CICPA) has the legal authority to draft Chinese Standards on Audit (CSA) in accordance with the Law of the People’s Republic of China on Certified Public Accountants, which are to be approved by the MoF. The CSA are converged with the 2010 ISA. The CSA comprise: one basic standard for assurance engagements; 45 auditing standards; one standard for review engagement; two standards for other assurance engagements; two standards for related services; and one standard for firms’ quality control. CICPA has is in the process of converging the CSA to incorporate changes from the new and revised audit reporting standards issued by the IAASB in January 2015. In addition, initiatives are underway to converge with ISA 610 and the IESBA NOCLAR standard and the Disclosures Project, estimated to be completed in 2018.

There is one professional designation—Certified Public Accountant (CPA)—in China which is protected and regulated by the Law of the People’s Republic of China on Certified Public Accountants 2014 (CPA Law).

The CPA Law outlines the regulation of the profession, including the requirements to become a CPA, the rights and responsibilities of CPAs, services offered, and the requirements for the provision of services. In addition, the law outlines sanctions that are applicable for non-compliance with the relevant standards when conducting audit engagements.

Under the CPA Law, the Ministry of Finance supervises the national professional accountancy organization, the Chinese Institute of Certified Public Accountants (CICPA), which unites local CPA institutes, provincial organizations that represent CPA members operating within the various provinces in China.

According to the CPA Law, to receive the designation of CPA, candidates must sit for a national uniform CPA examination. The Ministry of Finance (MoF) determines the form and content of the exam and CICPA is legally authorized to administer the exam. The law permits Chinese citizens who have completed at least a two-year college program at a recognized institution or who have achieved a middle-ranked technical title in accounting or subjects related to accounting to sit for the exam. Those who successfully pass the examination and have two years of auditing experience then apply to local CPA institutes.

Article 33 of the CPA Law requires CPAs to join a local CPA institute. The local CPA institute is responsible for approving the membership application after submitting a list of approved applicants to the MoF. Once the MoF validates the list of applicants, the institute may issue a CPA Certificate in a manner prescribed by the MoF. The finance departments of provincial government are responsible for issuing licenses for firms to practice in China. According to Articles 36 and 37 of the CPA Law, local CPA institutes are responsible for conducting annual practice inspections of CPAs, and annual examinations for CPAs to renew their qualification, revoking CPA Certificates in the case of serious professional misconduct, and supporting CPAs to implement and adhere here to professional standards in the course of their professional activities.

Membership with the local CPA institute automatically grants membership with CICPA. A complete list of CICPA’s responsibilities may be found in its Charter. Its responsibilities as specifically related to the regulation of the accountancy profession are to: (i) establish ethical and professional standards for CPAs and monitor implementation; (iv) administer the National Unified CPA examinations; (v) perform quality assurance (QA) reviews; (vi) organize the continuing professional development programming; (vii) investigate and discipline (I&D) members for non-compliance with standards and breaches of professional conduct where necessary; (viii) approve applications for CICPA membership and provide guidance to local CPA institutes on membership registrations and (ix) represent the profession in various settings. It carries out these responsibilities under the oversight of the MoF. According to the CPA Law, the MoF may issue disciplinary warnings in the case of any violations.

Additionally, the Securities Law of the People’s Republic of China of2014 authorizes the Chinese Securities and Regulatory Commission (CSRC) and the MoF to set additional requirements for auditors and audit firms of listed companies. The CSRC and the MoF are empowered to carry out joint regulatory activities, such as QA reviews and I&D procedures, for firms undertaking security-related services. Audit firms of listed entities must be licensed by the MoF and the CSRC in addition to the practice license issued by the finance departments of provincial governments.

There are no independent audit oversight arrangements in China.

There is one professional designation—Certified Public Accountant (CPA)—in China which is protected and regulated by the Law of the People’s Republic of China on Certified Public Accountants 2014 (CPA Law). CPAs are the only individuals permitted to conduct audits.

The CPA Law outlines the regulation of the profession, including the requirements to become a CPA, the rights and responsibilities of CPAs, services offered—which include auditing functions—and, the requirements for the provision of services. In addition, the law outlines sanctions that are applicable for non-compliance with the relevant standards when conducting audit engagements. Under the CPA Law, the Ministry of Finance supervises the national professional accountancy organization, the Chinese Institute of Certified Public Accountants (CICPA), and CICPA’s local CPA institutes which are provincial organizations that represent CPA members operating within the various provinces in China.

Article 33 of the CPA Law requires CPAs to join a local CPA institute. The local CPA institute is responsible for approving the membership application after submitting a list of approved applicants to the Ministry of Finance (MoF). Once the MoF validates the list of applicants, the institute may issue a CPA Certificate in a manner prescribed by the MoF. The finance departments of provincial governments are responsible for issuing licenses for firms to practice in China. According to Articles 36 and 37 of the CPA Law, local CPA institutes are responsible for conducting annual practice inspections of CPAs, and annual examinations for CPAs to renew their qualification, revoking CPA Certificates in the case of serious professional misconduct, and supporting CPAs to implement and adhere to professional standards in the course of their professional activities.

Membership with the local CPA institute automatically grants membership with CICPA. A complete list of CICPA’s responsibilities may be found in its Charter. Its responsibilities as specifically related to the regulation of auditors are to: (i) establish ethical and professional standards for CPAs and monitor implementation; (iv) administer the National Unified CPA examinations; (v) perform quality assurance (QA) reviews; (vi) organize the continuing professional development programming; (vii) investigate and discipline (I&D) members for non-compliance with standards and breaches of professional conduct where necessary; (viii) approve applications for CICPA membership and provide guidance to local CPA institutes on membership registrations and (ix) represent the profession in various settings. It carries out these responsibilities under the oversight of the MoF. According to the CPA Law, the MoF may issue disciplinary warnings in the case of any violations.

Additionally, the Securities Law of the People’s Republic of China of 2005 authorizes the Chinese Securities and Regulatory Commission (CSRC) and the MoF to set additional requirements for auditors and audit firms of listed companies. The CSRC and the MoF are empowered to carry out joint regulatory activities, such as QA reviews and I&D procedures, for firms undertaking security-related services. Audit firms of listed entities must be licensed by the MoF and the CSRC in addition to the practice license issued by the finance departments of provincial governments.

None of the abovementioned entities are a member of the International Forum of Independent Audit Regulators.

The Chinese Institute of Certified Public Accountants (CICPA)

CICPA was established in 1988 in accordance with the Law of the People’s Republic of China on Certified Public Accountants (CPAs). CICPA is the national professional accountancy organization with headquarters in Beijing that oversees all local CPA institutes throughout the country. The CICPA operates under the supervision of the Ministry of Finance (MoF).

A complete list of CICPA’s responsibilities may be found in its Charter. Its responsibilities as specifically related to the regulation of the accountancy profession are to: (i) establish ethical and professional standards for CPAs and monitor implementation; (iv) administer the National Unified CPA examinations; (v) perform quality assurance reviews; (vi) organize the continuing professional development programming; (vii) investigate and discipline (I&D) members for non-compliance with standards and breaches of professional conduct where necessary; (viii) approve applications for CICPA membership and provide guidance to local CPA institutes on membership registrations and (ix) represent the profession in various settings.

Lastly, in addition to being an IFAC Member, CICPA is a member of the Confederation of Asian and Pacific Accountants.

Under the Law of the People’s Republic of China on Certified Public Accountants of 1993 (CPA Law), the local CPA institutes are responsible for conducting annual practice inspections of CPAs; however, under the same law the Chinese Institute of Certified Public Accountants (CICPA) is responsible for establishing professional rules and standards for CPAs and may draw up a CICPA Charter to reflect these resulting regulations. Pursuant to the CPA Law and CICPA’s Charter, CICPA issued Rules on Quality Review of Accounting Firms to regulate and guide local CPA institutes’ QA reviews.

Under these Rules, CICPA reports it has established a QA review procedures for audits of listed entities and local CPA institutes undertake QA reviews of audit firms within their jurisdiction that audit non-listed companies. Furthermore, CICPA states that in 2010 it developed the Chinese Standards on Quality Control for Firms No. 5101, which is aligned with ISQC 1. The standards were approved and released by the Ministry of Finance

In 2011, CICPA notes that it reformed its QA review system and as of 2017, reports that the system maintains compliance with the SMO 1 requirements issued in 2012. The local CPA institutes utilize QA review mechanisms that are aligned with the CICPA’s system.

In addition, the Chinese Securities Regulatory Commission (CSRC) and the Ministry of Finance (MoF) also carry out QA reviews of audit firms that audit listed companies. Both the MoF and CSRC review audit firms once every three years and have authority to sanction firms for non-compliance. CICPA also states that the QA review systems established by the MoF and CSRC are in line with the requirements of SMO 1 based on available information.

The MoF, CSRC, and CICPA have established communication channels in order to avoid replication of work. In addition, all three bodies have developed (i) an information-sharing mechanism to exchange relevant issues identified within the inspection progress; (ii) a joint-training mechanism to reduce the workload of firms and effectively manage time; and (iii) a joint investigation and verification mechanism to deal with firms or CPAs that have received complaints and/or ceased to undertake audits of listed entities; and ( = 4 \* roman iv) a coordination mechanism to develop and revise related laws and regulations.

Current Status: Adopted

The Law of the People’s Republic of China on Certified Public Accountants of 1993 (CPA Law) outlines the requirements to become a CPA. These include attaining a university degree, successfully passing the national CPA examination that is administered by the Chinese Institute of Certified Public Accountants (CICPA) and overseen by the Ministry of Finance, and completing a prescribed number of years of work experience. CICPA indicates these initial professional development requirements are in line with IES requirements.

Under the same law the CICPA is responsible for establishing professional rules and standards for CPAs and may draw up a CICPA Charter to reflect these resulting regulations. Pursuant to the CPA Law and CICPA’s Charter, CICPA issued mandatory continuing professional development (CPD) requirements for its members and the institute has developed the Chinese CPAs CPD System. CICPA reports that its CPD requirements are aligned with the requirements of the IES.

Current Status: Adopted

In accordance with the Law of the People’s Republic of China on Certified Public Accountants, the Chinese Institute of Certified Public Accountants (CICPA) has the legal mandate to draft Chinese Standards on Audit (CSA), which comprise one basic standard for assurance engagements; 45 auditing standards, one standard for review engagements; two standards for other assurance engagements; two standards for related services; and one standard for firms’ quality control. The standards are approved by the Ministry of Finance (MoF).

In 2010, the CSA were converged with the 2010 ISA with limited additions. In 2013, CICPA translated the ISA into Chinese and published the Chinese version.

In December 2016, the CICPA completed a revision of certain auditing standards in order to incorporate the new and revised auditor reporting standards released by the IAASB, and these standards were approved by the MoF. In addition, CICPA reports that initiatives are underway to converge with ISA 610.

Current Status: Partially Adopted

In China, the Accounting Law of 1985, as amended in 1999, stipulates that professional accountants must abide by ethical requirements. In June 1996, the Ministry of Finance released Regulation of the Accounting Foundation Work, which includes ethical requirements for all accountants.

In accordance with the Law of the People’s Republic China on Certified Public Accountants, the Chinese Institute of Certified Public Accountants (CICPA) is authorized to establish professional standards and rules for CPAs which are then approved by the Ministry of Finance.

In 2009, the CICPA established the China Ethics Standards Board for CPAs (CESB) to set ethical standards for its members. The CESB formulated the CICPA Code of Ethics which is aligned with the 2009 IESBA Code of Ethics. In 2017, CICPA advised that it utilizes an extensive comparison chart to detail the differences between the CICPA Code of Ethics and the IESBA Code, which CICPA reports are more stringent than the IESBA Code. For example:

• the definition of immediate family which is broader than the IESBA Code of Ethics to align with national Chinese legislation;
• key audit matter rotation which in the CICPA Code of Ethics is five years on, two years off as opposed to seven years on, two years off in IESBA Code; and
• CICPA’s Code states that an auditor cannot accept any gift.

Local CPA institutes, which are overseen by CICPA and operate in different provinces in China, also follow CICPA’s Code of Ethics.

In 2018, CICPA plans to update its Code of Ethics in accordance with the IESBA Code and incorporate the latest revisions to the IESBA Code, for example, NOCLAR and the Structure of the Code.

Current Status: Partially Adopted

Under the Budget Law of the People’s Republic of China as amended in 2014, governmental finance departments are required to prepare accrual comprehensive financial reports on a yearly basis. The Ministry of Finance (MoF) is responsible for developing the public sector accounting standards.

In 2014, the accrual government accounting reform program as submitted by the MoF was approved by the State Council. Subsequently, the Government Accounting Standards—Basic Standard as well as standards for Inventories, Investment Property, Fixed Assets, and Intangible Assets were issued and effective as of January 2017.

In 2017, Government Accounting Standards for Public Infrastructure and Government Accounting Standards for Government Reserves were issued and become effective as of January 1, 2018. The Government Accounting System was issued in 2017 as well and will become effective as of January 1, 2019.

It remains unclear if the adopted standards are aligned with the IPSAS.

Current Status: Not Adopted

Under the Law of the People’s Republic of China on Certified Public Accountants of 1993 (CPA Law), the local CPA institutes may revoke CPA Certificates due to serious professional misconduct. The law also states that the Ministry of Finance (MoF) may issue disciplinary warnings, fines, and suspensions in the cases of non-compliance with regulations. Further, under the same law the Chinese Institute of Certified Public Accountants (CICPA) is responsible for establishing professional rules and standards for CPAs and may draw up a CICPA Charter to reflect these resulting regulations. Pursuant to the CPA Law and CICPA’s Charter, CICPA issued Disciplinary Measures for Non-compliance Activities Conducted by Members of CICPA.

CICPA reports that the local CPA institutes either directly follow the I&D system established by CICPA or develop their own system that is based on CICPA’s I&D system. As of 2017, CICPA reports that its I&D system has incorporated all the requirements of SMO 6.

The MoF and the Chinese Securities Regulatory Commission (CSRC) also have powers to investigate and discipline auditors with respect to audits of listed and other regulated entities. These entities can issue a range of sanctions for non-compliance. According to CICPA, the systems adopted by the MoF and CSRC also incorporate the requirements of SMO 6. There is ongoing communication between all responsible bodies regarding issues arising from I&D.

Current Status: Adopted

Under the Accounting Law of the People’s Republic of China of 2017, the Accounting Regulatory Department (ARD) of the Ministry of Finance is responsible for the development and adoption of corporate accounting standards in China. The ARD has issued two sets of accounting standards for mandatory application by corporate entities depending on their size, with advisory and technical support from the government-appointed Chinese Accounting Standards Commission (CASC).

Listed, large, and medium-sized entities apply Accounting Standards for Business Enterprises, which are substantially converged with the IFRS.

Since 2013, small companies may apply the Chinese Accounting Standards for Small Entities, which are based on the 2010 IFRS for SMEs. The CASC has translated the 2015 IFRS and 2010 IFRS for SMEs into simplified Chinese with the permission of the IFRS Foundation; however, the standards are not legally permissible to be directly applied.

Current Status: Partially Adopted

Relevant Organizations

• Accounting Regulatory Department (ARD)
• Chinese Accounting Standards Commission (CASC)
• Chinese Auditing Standards Board (CASB)
• Chinese Institute of Certified Public Accountants (CICPA)
• Chinese Securities and Regulatory Commission (CSRC)
• Ministry of Finance (MoF)
• Supervision and Inspection Bureau (SIB)

Relevant Legislation

• Accounting Law of the People’s Republic of China of 2017
• CICPA Code of Ethics
• CICPA Charter
• Company Law of 1993 (as amended in 2013)
• Disciplinary Measures for Non-compliance Activities Conducted by Members of CICPA
• Guidance on Competence of Chinese CPAs
• Law of the People’s Republic of China on Certified Public Accountants 2014 (CPA Law)
• Measure of Registration of CPAs
• Regulations on Continuing Professional Development for Chinese CPAs
• Rules on Quality Review of Accounting Firms
• Supervision Regulations on Audit of Financial Statements of Listed Companies

Relevant Publications

• China Briefing, “China’s Accounting Standards: Chinese GAAP vs. US GAAP and IFRS,” May 2017.
• CICPA, Development of the Accounting Sector in China (2016–2020), November 2016.
• CICPA, Overview of the Accountancy Profession in China, January 2015.
• CICPA, SMO Action Plan, March 2018.
• Crowe Horwath, “Country by Country Financial Reporting and Auditing Framework: China,” March 2014.
• Ernst and Young, China Accounting Alert, February 2014.
• Hong, Lou, “Development of China’s Government Accrual Accounting Reform,” PowerPoint file.
• IFAC, “Chinese Auditing Standards Board and International Auditing and Assurance Standards Board Issue Joint Statement Regarding Convergence of International Standards,” November 2010.
• IFRS Foundation, “IFRS Application Around the World?Jurisdictional Profile: China,” March 28, 2017.
• IFRS Foundation, “Ministry of Finance of China and IFRS Foundation Joint Statement,” 18 November 2015.
• Ministry of Finance, “The Experience of China’s Accounting Standards Setting and Its Convergence with IFRS,” February 2010.
• World Bank, Report on the Observance of Standards and Codes, Accounting and Auditing: China, October 2009.
• The CPA Journal, The Past, Present and Future of Auditing in China, January 2015.