In line with the opening of its economy to foreign investment in recent years, the Chinese authorities have developed an accounting framework to support its economic growth. The Chinese accounting framework is commonly referred to as the Chinese Accounting Standards (CAS) or the Chinese Generally Accepted Accounting Principles (or Chinese GAAP).

Although the Chinese Accounting Standards maintain a high level of integration with internationally accepted accounting standards, such as IFRS, foreign investors must understand differences that exist. This is of particular importance since all foreign-invested enterprises must meet monthly, quarterly and annual compliance requirements.

In the remainder of this article, we provide a further introduction to the background of the Chinese Accounting Standards and enumerate its main differences compared to IFRS. The article further highlights some difficulties which foreign companies in China may encounter as a consequence and seeks to offer recommendations for foreign companies active in China who do not have a deep knowledge of the Chinese GAAP.

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Chinese GAAP (CAS) vs IFRS: key differences at a glance

Area	Chinese Accounting Standards (CAS / Chinese GAAP)	IFRS
Standard-setting authority	Ministry of Finance (MoF)	International Accounting Standards Board (IASB)
Fixed asset valuation	Historical cost only	Historical cost or revaluation
Fiscal year	Mandatory calendar year (1 Jan – 31 Dec)	Any 12-month period
Expense classification	By function	By nature
Filing frequency	Monthly financial reporting	Quarterly or periodic reporting
Update cycle	Slower adoption of IFRS changes	Regular updates and amendments
China-specific rules	Includes PRC-specific accounting treatments	Global, principle-based framework

Introduction to the Chinese Accounting Standards

In China, the Accounting Regulatory Department of the Ministry of Finance (MoF) is the authority responsible for setting out the country’s accounting standards. Since 1992 the Chinese Ministry of Finance has worked on the gradual implementation of the Chinese Generally Accepted Accounting Principles, or China GAAP, also known as the Chinese Accounting Standards.

Here the Chinese Accounting Standards mainly consist of two sets of accounting standards, namely 1) the Accounting Standards for Business Enterprises (ASBEs) and 2) the Accounting Standards for Small-Sized Business Enterprises (ASSBEs).

The ASBEs consist of one Basic Standard, 38 Specific Standards and the related application guidance, which provide the Chinese conceptual framework for financial reporting which applies to all enterprises established in Mainland China, and can be viewed as the counterpart of the International Financial Reporting Standards (IFRS, sometimes still referred to as International Accounting Standards, or IAS) . Whereas the ASBEs have been commonly adopted by basis since their issuance in 2006, small-scale enterprises may choose to adopt instead the ASSBEs (the counterpart of IFRS for SMEs).

Since the purpose of accounting is to provide information to truthfully reflect the financial situation and operating results of an enterprise, the Chinese Accounting Standards stipulate that for-profit enterprises should perform their accounting based on an accrual basis. On the other hand, in China, cash-based accounting is applicable to administrative/public institutions and for Representative Offices. In our previous article we further elaborated on the relevance of accrual- vs cash-based accounting within the Chinese Accounting Standards.

Since the main objective of the Chinese authorities to issue the ASBEs and ASSBEs was further convergence with internationally accepted accounting standards, the differences in formulation of the Chinese Accounting Standards as compared to IFRS does not necessarily translate into many differences in accounting requirements. However, key differences still exist, and we will further enumerate upon these in the next section.

What Are the Differences Between Chinese GAAP and IFRS?

Despite the substantial convergence of the Chinese Accounting Standards with IFRS, a number of notable differences with IFRS exists. The Key Differences Are:

1. The Fixed Assets Evaluation Method

The most notable difference between Chinese GAAP and IFRS is that in line with the Chinese Accounting Standards companies can only use the historical cost method to valuate fixed- and intangible assets, whereas IFRS allows the use of both the historical cost method and the possibility of re-evaluating the asset(s).
Since the historical cost method does not allow for the re-evaluation of assets, which means there is the possibility for impairment losses of certain long-term assets, such as property, plant and equipment, intangible assets, investments (other than financial assets) and investment property.

2. The Fiscal Year

In line with the Chinese Accounting Standards, the fiscal year in China must start from January 1^st and no exceptions are provided. On the other hand, according to IFRS the company’s fiscal year can start at any point throughout the year provided that it encompasses a period of 12 consecutive months.
After the end of the Chinese fiscal year all foreign-invested enterprises in China must complete the annual statutory requirements, including the year-end statutory audit, annual CIT filing and annual publication report. As a consequence of the fiscal year end date, the deadline for the above statutory requirements is May 31^st of the subsequent year.

3. Tax Filing

Whereas in China companies submit financial statements on a monthly basis, under IFRS returns can be filed on a quarterly or bi-monthly basis.

4. Expense Classification

The Chinese Accounting Standards stipulate that expenses are classified according to function, whereas IFRS would classify said expenses by nature. For an example of how expenses are classified, check out our guide to advertising deductions.

5. Other Differences

Chinese Accounting Standards (ASBEs) include mandatory treatments for transactions that arise frequently in the domestic market but are not comprehensively addressed under IFRS. A clear example is business combinations under common control, which under ASBE No. 20 require a pooling-of-interests approach, with assets and liabilities carried over at historical book values and prior-period figures restated. IFRS does not provide an equivalent mandatory standard for common-control combinations, leaving such transactions outside IFRS 3 and subject to accounting policy choice.

Conversely, IFRS contains more developed guidance in areas that are less prevalent in China but common among multinational groups. This is particularly evident in employee benefits. IAS 19 provides detailed rules on defined benefit obligations, actuarial valuations, remeasurement through other comprehensive income, and post-employment benefit disclosures. By contrast, ASBEs offer relatively limited guidance on complex employee benefit arrangements, with the principal exception being share-based payments, which are addressed under ASBE No. 11.

It should also be noted that the core ASBEs were issued in 2006 and have not been comprehensively rewritten since. Subsequent convergence has occurred primarily through Ministry of Finance interpretations responding selectively to IFRS developments. As a result, updates to IFRS are typically reflected in Chinese standards with a delay. Foreign-invested enterprises should therefore expect ongoing technical differences between Chinese subsidiaries reporting under ASBEs and overseas entities reporting under IFRS.

Chinese GAAP diverges from IFRS in critical areas including revenue recognition, asset valuation, and contingency provisions, making dual reporting necessary for multinational parent companies with consolidated accounts. Accounting in China experts at MSA Asia navigate GAAP-to-IFRS reconciliations and dual reporting structures. Contact our team to optimize your accounting framework.