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Article 1. The present Measures are formulated in accordance with the General Financial Principles for Enterprises in order to establish and improve the system of internal control for enterprises, regulate the financial management of enterprise asset losses, and strengthen enterprise financial management. Article 2. The asset losses mean the losses of all items of assets actually occurred to an enterprise, including bad debt losses, inventory losses, losses from fixed assets and projects under construction, guaranty losses, share right investment or credit investment losses and losses from running the transaction of securities, futures and foreign exchanges, etc. Article 3. The bad debt loss means all kinds of accounts receivable which are confirmed by an enterprise as unable to be received. The bad debt losses of an enterprise shall be confirmed in accordance with the Notice of the Ministry of Finance on Establishing and Improving the System on Management of Enterprise Accounts Receivable (No. 513 [2002] of the Ministry of Finance). Article 4. The net losses from inventory overages or shortages of fixed assets, projects under construction and other assets in kind shall be confirmed pursuant to the entire and effective detailed information on taking stock and the result determined by the relevant responsible department within the enterprise. Where the inventories, fixed assets, projects under construction and other assets in kind are damaged, discarded, mildewed and rotten, or exceed the guarantee period and have no value of transferability, and moreover, have been tested by professional quality testing or technical expertise as such, then the balance after deduction of the residual value, insurance compensation and the liable person's compensation shall be confirmed as asset loss on the basis of the quality testing result and the insurance claim settlement documents. Where vehicles, ships, boilers, lifts and other assets are damaged or discarded, the otherwise provisions of the state, if any, shall be complied with. Article 5. The share right investment losses suffered by an enterprise shall be confirmed in light of the following circumstances: (1) If, with respect to the share right investments not held by the controlling party, the duration of the investments has expired or has exceeded 10 years, and the invested entity runs into insolvency due to 3 consecutive years of deficient operation, the first-mentioned enterprise may confirm the investment losses on the basis of the invested entity's balance sheet and income statement audited by the certified public accountant. If the invested entity becomes bankrupt, cancels its industrial and commercial registration or is closed upon decision of the people's government at the county level or above, the first-mentioned enterprise shall confirm the investment losses on the basis of the relevant legal documents; or (2) If, with respect to the share right investments held by the controlling party, the invested enterprise runs into deficient operation, the first-mentioned enterprise shall count the investment losses by equity method. If the invested enterprise is terminated due to illegal operation or other reasons, the first-mentioned enterprise shall confirm the investment losses on the basis of the legal documents on the invested enterprise's cancellation of its industrial and commercial registration and the liquidation report on its closure or the declaration of its bankruptcy in accordance with the law. If to transfer share right investments, the first-mentioned enterprise shall confirm the investment profits or losses on the basis of the agreement on share right transfer for the first time, and the resolution of the invested enterprise's board of directors. Article 6. Where the investment losses of an enterprise occurred from its credit investment belong to bonds investments, such losses shall be confirmed in accordance with Article 9 of the present Measures. If they belong to the investments of credit other than bonds, they shall be confirmed according to the following circumstances: (1) If the invested party has been terminated, such losses shall be confirmed on the basis of the invested party's liquidation report; or (2) If the invested party has not been terminated, such losses may be confirmed on the basis of the agreement with the relevant party on transferring or paying off 1 per millage of the credits. However, if the duration of the investments has not expired, the relevant agreements shall be notarized. If any lawsuit is involved, such losses shall be confirmed on the basis of the relevant legal documents. Article 7. An enterprise shall, on the basis of the evidence on the natural disaster or unexpected accident and the documents on insurance claim settlement, confirm the balance of the asset losses due to natural disaster or any other unexpected accident, after deduction of the residual value, the insurance indemnity or other liability compensation, as the asset losses . An enterprise shall, on the basis of the judicial organ's documents on settlement of the case, confirm the balance of the asset losses caused from a crime, after deduction of the residual value, the insurance indemnity or other liability compensation, as the asset losses. Article 8. Where an enterprise suffers asset losses due to bearing joint liabilities for guaranty, it shall exercise the recourse and clarify the internal recourse responsibility in accordance with the law. The recovered credits shall be confirmed as bad debt losses in accordance with Article 3 of the present Measures. Article 9. The losses of an enterprise from running the transaction of futures, securities or foreign exchanges, shall be confirmed sum by sum on the basis of the enterprise's documents on authorization for internal affairs, and the documents provided by the relevant transaction settlement institution on settlement of lawful transaction funds. In case of any transaction loss in excess of the scope of authorization for internal affairs, the enterprise shall investigate the relevant employee's economic liabilities. Article 10. An enterprise that suffers asset losses shall deal with the matter according to the following internal procedures: (1) The relevant responsible department within the enterprise shall, after collecting evidence, render a report to state the causes and facts of the asset losses; (2) The audit (supervision) department within the enterprise shall render the opinions on settlement of the case after investigating the liabilities; (3) The enterprise shall authorize a lawyer to provide the legal opinions if the asset losses are involved in a lawsuit; and (4) The financial management department of the enterprise shall, after examination, render its accounting treatment opinions on the confirmed asset losses, and, pursuant to the enterprise's internal management system, submit them to the board of directors or the manager's (factory director's) office for determination. Article 11. With respect to the asset losses due to violation of laws or disciplines, an enterprise shall, in accordance with the relevant laws and regulations, Party disciplines and governmental disciplines, and the enterprise's internal management rules, punish the directly liable person in charge and other directly liable persons. If anyone is suspected to have committed a crime, the case shall be transferred to the judicial organ for investigation of his legal liabilities. Article 12. The asset losses of an enterprise occurred during its production and management shall be checked and verified in time, and be treated as current profits and losses, and be counted by the methods prescribed in accounting systems. The certified public accountant shall focus on the asset losses dealt with by the enterprise when auditing the enterprise accounting report, and disclose them in the accounting report. Article 13. Where an enterprise checks all its assets due to the following circumstances, the owners equity may be written off from the checked asset losses: (1) The enterprise is merged or divided; (2) The enterprise carries out corporate reform; (3) The enterprise is a non-corporate enterprise and is sold entirely; (4) The enterprise makes an inventory of assets and liabilities in accordance with the relevant provisions; (5) The enterprise sorts out and rectifies itself, or modifies the management relationship in accordance with the law; (6) Other acts lawfully changing the enterprise's organizational form. Article 14. Where a state-owned enterprise is involved with the asset losses for which the owners equity may be written off in accordance with Article 13 of the present Measures, it shall, pursuant to the opinions of its board of directors or of the manager's (factory director's) office, report to the entity holding the enterprise's state-owned capital to deal with the matter in accordance with the relevant provisions in the Regulation on Supervision and Administration of State-owned Assets of Enterprises. The state-owned assets supervision and administration institution shall, if performing the investor's duties to a state-owned enterprise, examine, approve and write off the state-owned equity of that enterprise, and shall make a copy to the enterprise's competent financial organ. If the examined asset losses involve profits and losses of the enterprise, the opinions of the competent financial organ shall be solicited for in advance. Article 15. An enterprise, which is declared bankruptcy in accordance with the law, shall not discretionally write off the asset losses after entering the bankruptcy procedures. Within the period 6 months before the people's court accepts the bankruptcy case up to the day when the bankruptcy is declared, the bankrupt enterprise's following acts shall be ineffective, and the assets thus lost shall be recovered by the liquidation institution in accordance with the law: (1) Concealing, privately sharing or gratuitously transferring the assets; (2) Selling the assets in an unusually low price; (3) Providing asset guaranty to the debts, which had no asset guaranty before; (4) Paying off undue debts in advance; (5) Waiving its credits. Article 16. The departments (bureaus) of finance of all provinces, autonomous regions, municipalities directly under the Central Government and cities directly under state planning may, in accordance with the present Measures and in combination with the specific situation of their respective regions, formulate the detailed rules for the implementation thereof. Article 17. The present Measures shall come into force on October 5, 2003. |
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