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Foreign-invested enterprises in China must undergo an annual audit by a licensed China CPA firm to verify that their financial statements accurately reflect their financial position according to PRC GAAP. This audit, conducted after the fiscal year-end (December 31st), must be completed before the annual CIT filing.
Statutory Audit Services
- Annual Statutory Audit Coordination: We coordinate the annual audit process with licensed China CPA firms to ensure timely completion in accordance with Chinese compliance requirements.
- Liaison with China CPA Firms: We act as a liaison between your company and the China CPA firm, facilitating communication and ensuring a smooth audit process.
- PRC GAAP Compliance Review: We review your financial statements to ensure they are prepared in accordance with PRC GAAP (Chinese Accounting Standards) and are ready for the annual audit.
- Audit Preparation & Documentation Support: We assist in preparing the necessary documentation and information required by the China CPA firm for the annual audit.
- Group Audit Conversion Support: We support the conversion of the China statutory audit report to align with group audit and reporting requirements, facilitating consolidation and reporting at the parent company level.
Benefits of our Statutory Audit Services
- Ensured Regulatory Compliance: As experts, we ensure that your company meets all mandatory Chinese statutory audit requirements, minimizing the risk of penalties or legal issues.
- Improved Transparency and Credibility: A clean audit report enhances your company’s transparency and credibility with stakeholders, including investors, lenders, and government authorities.
- Facilitated Tax Reconciliation: A completed and accurate audit report is essential for the subsequent corporate income tax (CIT) reconciliation process, ensuring accurate tax reporting and minimizing tax liabilities.
- Support for Profit Distribution: A compliant audit provides the necessary foundation for legally distributing profits and repatriating funds from China.
Statutory Annual Audit Preparation
Before the annual audit, companies conduct a preliminary audit to strategize the process, identify potential issues and address shortcomings. Typically initiated in November or December, it involves auditors assessing risks, reviewing internal controls, and evaluating the company’s environment with financial and operational teams, reducing the substantive audit workload.
Regulatory requirements for FIEs
Foreign-Invested Enterprises (FIEs) in China, including Wholly Foreign-Owned Enterprises (WFOEs), Joint Ventures (JVs) and Representative Offices (ROs), must comply with strict financial reporting regulations, 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, and each FIE and its legally responsible person must ensure the financial statements’ truthfulness, legitimacy and completeness. The objective of a statutory audit 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, including its operations and cash flows for the year.
Audit report standards
The standard annual audit report for FIEs includes an audit report (opinion page), financial statements (balance sheet, income statements, cash flow statements, change in equity statement, and notes), and is conducted under 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, and reports are usually aimed to be ready before the end of April to meet the tax reconciliation deadline.
Tax reconciliation filing
Following the statutory audit, an annual corporate income tax (CIT) reconciliation (annual CIT filing) is due by 31 May each year. While the State Tax Administration (STA) oversees various taxes, only CIT necessitates an annual reconciliation with the tax bureau. The standard CIT rate is 25% on profits, though it may vary. The annual CIT reconciliation confirms full tax payment and determines if additional tax or a refund is due, which then allows foreign companies to distribute profit and repatriate.
Annual reporting procedure
After the annual audit report and CIT reconciliation, companies submit the annual report to government bureaus by 30 June via the National Credit Information Publicity System, combining local Administration of Market Regulation reporting into a many-in-one report. Previously, separate reports were required for entities like the State Administration for Market Regulation (SAMR), the Ministry of Commerce (MOFCOM), the State Administration of Foreign Exchange (SAFE), and the Finance and Customs Authorities (for trading companies). The annual report covers details like basic company information, investor profile, equity transfer information, investment details, balance sheet data, warranties and guarantees, and operational data.
