16th May 2017
Foreign Invested Enterprises (FIE) refer to enterprises founded in China by foreign enterprises, economic organisations or individuals, the registered capital of which is subscribed and contributed by a foreign investor(s). MSI's Chinese accounting member LehmanBrown provides insights into audit of FIEs in China.
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 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. There are some exceptions for limited transaction companies in the Free Trade Zones where an exemption can granted by the authorities.
FIEs are governed by the Chinese Accounting Standards for Business Enterprises (ASBEs) and the Accounting Regulations for Business Enterprises (ARBEs), collectively referred to PRC GAAP, and there are no basic differences between standards for domestic and foreign enterprises. FIEs, 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 as 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, which is also termed as “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.
Read more about China: Audit of Foreign Invested Enterprises
LehmanBrown is a China-focused accounting, taxation and business advisory firm, operating dedicated offices in Beijing, Shanghai and Shenzhen with an extensive affiliate network providing service throughout China.
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