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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II ACCOUNTING POLICIES CHAPTER III CHANGES IN ACCOUNTING ESTIMATES CHAPTER IV CORRECTIONS OF PRIOR PERIOD ERRORS CHAPTER V DISCLOSURE CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the application of enterprise accounting policies, the changes in accounting policies, the recognition and measurement of changes in accounting estimates and the corrections of errors in the prior periods, as well as the disclosure of relevant information, these Standards are formulated in accordance with the Accounting Standards for Enterprises-Basis Standards. Article 2. The effects of the changes in accounting policies and the corrections of errors in the prior periods on income tax shall be governed by the Accounting Standards for Enterprises No. 18-Income Tax. CHAPTER II ACCOUNTING POLICIES Article 3. An enterprise shall select and apply the same accounting policies for identical or similar transactions or events, however, unless it is otherwise provided by other accounting standards. The term "accounting policies" refers to the specific principles, basis and accounting treatment methods adopted by an enterprise for accounting recognition, measurement and reporting. Article 4. The accounting policies adopted by an enterprise shall be consistent for each accounting period and for the prior and subsequent accounting periods, and shall not be changed randomly. However, a change in accounting policy may be made if either of the following circumstances applies: (1) The change is required by any law, administrative regulation, or national uniform accounting system; or (2) The change in accounting policy will provide more reliable and relevant accounting information. Article 5. The following are not changes in accounting policies: (1) A new accounting policy is adopted for transactions or events occurring in the current period which differ in substance from those occurred in the prior periods; and (2) A new accounting policy is adopted for transactions or events which occur for the first time or which are unimportant. Article 6. Where an enterprise changes an accounting policy under any law, administrative regulation or the national uniform accounting system, it shall comply with the relevant accounting provisions of the state. If a change in accounting policy can provide more reliable and relevant accounting information, the change shall be treated through the retrospective adjustment method. The cumulative effect of the change in accounting policy shall be used as an adjustment to the retained earnings at the beginning of the earliest prior period presented, to the opening balance of other relevant items as well as to other comparative data disclosed in the prior period presented, unless the cumulative effect of a change in accounting policy cannot be reasonably determined. The retrospective adjustment method refers to a method whereby, for a change in accounting policy in respect of particular transactions or events, the new accounting policy is applied as if it had been in use from the day when such transactions or events first occurred, and the relevant items in the financial statements are adjusted accordingly. The cumulative effect of a change in accounting policy refers to the difference between the adjusted opening balance of retained earnings of the earliest prior period presented if the adjusted accounting policy had been applied retrospectively for all prior periods and the present amount of the retained earnings. Article 7. If it is impracticable to determine the effect of a change in accounting policy for the prior period presented, the new accounting policy shall be applied from the beginning of the earliest period for which retrospective application is practicable. If, at the beginning of the current period, it is impracticable to determine the cumulative effect of the change in accounting policy for all prior periods, the prospective application method shall be adopted. The term "prospective application method" refers to is a method whereby for a change in accounting policy, the new accounting policy is applied to the transactions or events occurring on the date of change and in subsequent periods; or refers to a method whereby, for a change in accounting estimate, the effects of the change of the accounting estimate during the current period of the change and in future periods are recognized. CHAPTER III CHANGES IN ACCOUNTING ESTIMATES Article 8. An enterprise may need to revise its accounting estimates due to a change in the basis for estimates, or due to the obtainment of new information, accumulation of more experiences as well as the subsequent development and changes. The basis for the changes in accounting estimates shall be genuine and reliable. A change in accounting estimate refers to an adjustment to the carrying amount of an asset or liability or to the amount of expense of an asset during a certain period, resulting from the changes in the current situation of the asset or liability and the expected benefits and obligations. Article 9. An enterprise shall adopt the prospective application method to treat the changes in accounting estimates. If a change in accounting estimate affects only the current period of the change, the effect of the change shall be recognized in the period of the change. If any change in an accounting estimate affects both the period of the current change and future periods, the effects of the change shall be recognized in the period of the change and in future periods. Article 10. Where it is difficult for an enterprise to determine a change as one in accounting policy or as one in an accounting estimate, it shall treat it as a change in an accounting estimate. CHAPTER IV CORRECTIONS OF PRIOR PERIOD ERRORS Article 11. Prior period errors are omissions from or mispresentation in financial statements for the prior periods arising from the failure to use or misuse of the following two kinds of information: (1) The reliable information that was available and could reasonably be expected to be obtained and taken into account in preparing the financial statements for the prior periods; (2) The reliable information that was available when the financial reports are authorized for issue. Generally prior period errors include calculation mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, consequences of fraud, inventory overage, fixed asset overage, etc. Article 12. An enterprise shall adopt the retrospective method to correct any material prior period error, however, unless it is impractical to determine the cumulative effects of the prior period error. The term "retrospective restatement method" refers to a method whereby, when a prior period error is discovered, the relevant items of the financial statements are corrected as if the prior period error had never occurred. Article 13. If it is impracticable to determine the effect of a prior period error, the enterprise may begin to adjust the opening balance of the retained earnings of the earliest prior period for which the retrospective restatement is practical, and in the meanwhile, adjust the opening balances of other relevant items of in the financial statements, or may adopt the prospective application method. Article 14. An enterprise shall, in the financial statements of the current period where it discovers any material prior period error, adjust the comparative information of the prior period. CHAPTER V DISCLOSURE Article 15. An enterprise shall, in its notes, disclose the following information relating to the changes in accounting polices: (1) The nature, contents and reasons for the changes in accounting policies; (2) The names of the affected items and the adjustment amounts in the financial statements for the current period and all the prior periods presented; and (3)If it is unable to make retrospective adjustments, it shall state the facts, reasons, date of beginning of the application of the new accounting policies as well as the information about the concrete application thereof. Article 16. An enterprise shall, in its notes, disclose the following information related to the changes in accounting estimates: (1) The contents of and reasons for the changes in accounting estimates; (2) The effects of changes in accounting estimates in the current period and future periods; and (3) If it is unable to determine the effect of a change in the accounting estimate, it shall disclose the facts and reasons. Article 17. An enterprise shall, in its notes, disclose the following information related to the corrections in prior period errors: (1) The nature of the prior period errors; (2) The names of the affected items and the corrected amounts in the financial statements for all prior periods presented; and (3) If it is unable to make a retrospective statement, it shall state the facts, reasons, time point of beginning the correction of the prior period error, as well as the information about the concrete correction. Article 18. In the financial statements for subsequent periods, it is not required to repeatedly disclose any information about the changes in accounting policies and corrections of prior period errors which have been disclosed in the notes of prior periods. |
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