6.1 Enterprise Financial Systems and Standards
The new Financial Principles for Enterprises which went into force on 1 January 2007 set out clear guidelines covering six major areas of enterprise financial management, namely investment capital, asset management, cost control, revenue allocation, information management and financial supervision. The new Principles also set standards for financial management methods and policies by integrating the different elements of financial management. Moreover, the new Principles have brought innovations to the enterprise financial system by making it more open.
While the section above on the Accounting System for Business Enterprise has covered in detail the recognition and measurement of the assets, liabilities, costs and expenses, and profits of enterprises, the following section will focus on the regulations governing FIEs' financial registration, establishment of financial accounting departments, investment capital, standards and scope of expenses, reorganisation and liquidation, and advance recovery of investment by the foreign party.
6.1.1 Financial Registration
An FIE should apply to the financial authority for financial registration within 30 days after submission of application for business registration or change of registration details. To apply for financial registration, an enterprise should complete the Financial Registration Form for Foreign-invested Enterprises, supported by the following documents: approval certificate for establishment of an enterprise; feasibility study report and its approval document; FIE contract (agreement), articles of association (copy) and their respective approval documents; business licence (copy); and information on the FIE's financial management system and related rules formulated in accordance with the relevant state regulations.
An FIE should submit its financial accounting statements and status report of its financial position to the competent financial or administrative authority and local tax office on a regular basis. The format, content and schedule for submission should follow the relevant stipulations by MOF. Annual financial statements and liquidation reports should be accompanied by an auditor's report prepared by Chinese certified public accountants (CPAs).
6.1.2 Establishment of Financial Accounting Department
FIEs should establish a financial accounting department in the place where it is located, to be manned by qualified financial and accounting personnel responsible for handling financial and accounting matters in accordance with the law. (MOF has strict management guidelines regarding the qualifications of financial and accounting personnel.)
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