The Chinese Accounting Standards (CAS) are the primary financial reporting framework for all enterprises operating in China, including foreign-invested enterprises. The CAS system was developed by the Ministry of Finance (MOF) and has been progressively converged with IFRS since 2006.

The CAS framework consists of three levels:

Level 1: Basic Standard (基本准则)
The Basic Standard establishes the fundamental principles, assumptions, and qualitative characteristics of financial reporting in China. It defines the objective of financial statements, the elements of financial statements (assets, liabilities, equity, income, expenses), recognition criteria, measurement bases, and the principles for preparing and presenting financial reports. This standard is closely aligned with the IFRS Conceptual Framework.

Level 2: Specific Standards 1–42 (具体准则)
There are currently 42 specific CAS standards, each addressing a particular accounting topic. The most relevant ones for foreign companies include:

• CAS 2 — Long-Term Equity Investments: Governs accounting for subsidiaries, associates, and joint ventures
• CAS 4 — Fixed Assets: Recognition, measurement, depreciation, and impairment of property, plant, and equipment
• CAS 6 — Intangible Assets: Recognition and measurement of patents, trademarks, software, and technology licenses
• CAS 14 — Revenue: Revenue recognition, closely aligned with IFRS 15
• CAS 18 — Income Taxes: Current and deferred tax accounting
• CAS 19 — Foreign Currency Translation: Foreign currency transactions and translation of foreign operations
• CAS 20 — Business Combinations: Acquisition accounting and consolidation
• CAS 21 — Leases: Lessee and lessor accounting (substantially converged with IFRS 16)
• CAS 30 — Presentation of Financial Statements: Format and content of financial statements
• CAS 36 — Related Party Disclosures: Disclosure of related-party relationships and transactions
• CAS 40 — Joint Arrangements: Accounting for jointly controlled entities and operations

Level 3: Application Guidance and Interpretations (应用指南和解释)
The MOF issues application guidance providing detailed implementation instructions for each specific standard, along with official interpretations addressing emerging issues and implementation questions. These are mandatory components of the CAS framework.

All FIEs in Anhui, regardless of size, industry, or ownership structure, must prepare their statutory financial statements in accordance with the full CAS framework. There are no simplified reporting options for foreign companies — the simplified standards (EAS and CAS for Small Enterprises) are available only to domestic Chinese enterprises.

The MOF has pursued substantial convergence between CAS and IFRS, and the two frameworks are now approximately 90–95% aligned for most transaction types. However, significant differences remain in certain areas:

Yes. While the underlying CAS framework applies equally to all enterprises, foreign-invested enterprises are subject to several additional accounting requirements under specific regulations:

Foreign Exchange Accounting Requirements

FIEs must maintain separate accounting records for foreign currency transactions. Under CAS 19 (Foreign Currency Translation), all foreign currency transactions must be recorded initially at the spot exchange rate on the transaction date. At each balance sheet date, monetary items denominated in foreign currency must be translated using the closing rate, with exchange differences recognized in profit or loss. This is particularly important for FIEs that have:

• Capital contributions in foreign currency (which must be translated at the rate on the date of contribution)
• Foreign currency bank accounts and receivables/payables
• Cross-border loans (foreign debt) denominated in foreign currency
• Revenue or expenses denominated in foreign currency

Capital Contribution Accounting

Under PRC company law and CAS, capital contributions from the foreign parent must be recorded at the actual amount received, translated at the spot exchange rate on the date of contribution. The contributed capital cannot be revalued or adjusted for changes in exchange rates. This means that exchange rate movements between the date of capital commitment and the date of actual contribution are recognized in the company’s equity and accumulated other comprehensive income, not in profit or loss.

Profit Distribution and Reserve Requirements

PRC law requires all companies to make specific appropriations from after-tax profits before dividends can be distributed:

• Statutory surplus reserve (法定盈余公积): 10% of after-tax profits until the reserve reaches 50% of registered capital. This reserve cannot be distributed as dividends and is a permanent appropriation of retained earnings.
• Discretionary surplus reserve (任意盈余公积): Additional reserves if specified in the articles of association. The percentage and cap are determined by the company’s own governing documents.
• Welfare fund for employees: Some FIEs may be required to set aside funds for employee welfare under their specific establishment approvals (though this requirement has been relaxed in recent years).

These reserve requirements affect the calculation of distributable profits for dividend remittance purposes and must be reflected in the accounting records and financial statements.

Transfer Pricing Documentation

While not strictly an accounting standard, transfer pricing documentation requirements are closely tied to accounting records. FIEs with related-party transactions exceeding RMB 40 million annually must maintain contemporaneous documentation demonstrating that their transfer prices comply with the arm’s length principle. This documentation includes:

• Master file (group-level information)
• Local file (China-specific information)
• Country-by-country report (for groups with consolidated revenue above RMB 5.5 billion)

Unlike IFRS, which provides principles-based guidance on financial statement presentation, CAS prescribes specific formats for financial statements. The required formats are issued by the MOF and must be followed precisely. The required financial statements for FIEs include:

Balance Sheet (资产负债表)

The CAS balance sheet follows a specific vertical format with prescribed line items and sub-totals. Assets must be presented in order of liquidity (current assets first, non-current assets second), with separate line items for cash, accounts receivable, inventories, fixed assets, intangible assets, etc. Key differences from a typical IFRS or US GAAP balance sheet include:

• Specific line items for “statutory surplus reserve” and “discretionary surplus reserve” within equity
• A separate line for “capital surplus” (share premium)
• Specific classification of “long-term deferred expenses” as a non-current asset
• No presentation of “other comprehensive income” as a separate equity component (accumulated OCI is included in a specific reserve account)

Income Statement (利润表)

The CAS income statement uses a function-of-expense format (cost of sales, selling expenses, administrative expenses, finance costs). Key features include:

• Separate line for “other income” (including government grants)
• “Investment income” shown after operating profit
• “Non-operating income” and “non-operating expenses” are separate line items
• Income tax expense shown as a separate line
• Net profit is shown, followed by “other comprehensive income” items in a separate section below the main income statement

Cash Flow Statement (现金流量表)

The CAS cash flow statement uses the indirect method for operating activities (starting with net profit and adjusting for non-cash items), with classification into operating, investing, and financing activities. The CAS classification rules are largely consistent with IFRS, with minor differences in how certain items (such as interest and dividends) are classified.

Notes to Financial Statements (财务报表附注)

The notes to financial statements under CAS are extensive and prescriptive. They must include:

• General information about the company (including the ultimate parent company)
• Summary of significant accounting policies
• Detailed breakdowns of each balance sheet and income statement line item
• Related-party disclosures (including transactions with all related parties, regardless of whether at arm’s length)
• Commitments and contingencies
• Post-balance sheet events
• Approval of financial statements by the board of directors

To maintain CAS-compliant accounting records, FIEs in Anhui typically use one of the following accounting software solutions:

For most small to medium-sized FIEs in Anhui, UFIDA U8+ or Kingdee K/3 WISE offer the best balance of cost, functionality, and CAS compliance. These systems are widely used by CPA firms in Anhui, who can provide support, training, and integration with their audit tools.

While the MOF in Beijing issues all CAS standards, the Anhui Provincial Department of Finance (安徽省财政厅) and Anhui tax authorities provide local implementation guidance that can affect accounting practices:

Anhui R&D Super-Deduction Guidance: The Anhui tax bureau has issued specific guidance on the documentation required to claim the R&D expense super-deduction (175% or 200% deduction, depending on the industry and year). The Anhui guidance requires more detailed project-level accounting records than the national guidance, including separate tracking of R&D personnel time, equipment usage, and material consumption. Companies claiming the super-deduction should expect to maintain an R&D expense ledger that is approximately 30% more detailed than the minimum national requirements.

Anhui Manufacturing Cost Accounting Guidance: The Anhui Finance Department has published supplementary guidance for manufacturing cost accounting, reflecting the province’s industrial structure. This guidance clarifies the treatment of certain costs common in Anhui’s manufacturing sector, including:

• Treatment of mold and die costs (common in Anhui’s manufacturing base)
• Allocation of factory overhead in multi-product manufacturing facilities
• Treatment of subcontracting costs in the supply chain
• Valuation of work-in-progress in continuous process manufacturing

Free Trade Zone Reporting: Companies in Anhui’s FTZ may benefit from the FTZ’s “simplified annual reporting” pilot, which reduces the number of supplementary schedules required in the annual financial statements. However, the underlying CAS standards remain fully applicable — only certain disclosure requirements are streamlined.

Hefei High-Tech Zone Incentive Accounting: Companies in the Hefei National High-Tech Industrial Development Zone that receive incentive payments, grants, or subsidies from the zone’s management committee must account for these in accordance with CAS 16 (Government Grants). The Anhui Finance Department requires specific disclosure of all zone-related incentives in the notes to the financial statements, including the nature, amount, and conditions attached to each grant.

Transitioning from a home-country accounting framework to CAS requires careful planning. The key steps include:

1. Engage a CAS-experienced CPA firm: Before operations begin, identify a qualified CPA firm in Anhui that has experience with companies from your home country. They can advise on CAS implementation and help design your accounting system from the start.
2. Set up the accounting system for CAS compliance: Configure your accounting software with the CAS chart of accounts, which differs significantly from IFRS or US GAAP charts. This includes specific account categories for items like statutory reserves, government grants, and Chinese-specific taxes.
3. Document CAS-IFRS differences: Create a comprehensive reconciliation schedule showing the differences between CAS and your home-country GAAP. This will be used for both the statutory audit and the group consolidation.
4. Train local finance staff: Ensure that your finance team in Anhui is trained on CAS requirements. Many multinationals send their Anhui-based finance managers to the CAS training programs offered by the Shanghai National Accounting Institute or through the MOF’s online training platform.
5. Prepare a CAS opening balance sheet: When starting operations, prepare an opening CAS balance sheet that properly classifies all assets, liabilities, and equity according to CAS requirements. This forms the baseline for all future financial reporting.
6. Establish ongoing dual-reporting processes: Implement processes for maintaining both CAS-based statutory accounting and group-reporting accounting, with systematic reconciliation procedures.

Most CPA firms in Anhui offer CAS transition support services, typically costing RMB 30,000–80,000 depending on the complexity of the transition and the number of CAS-IFRS differences to be addressed.