FAQ on SAIC financial statements

Following my article on CMFO, I have been asked a variety of questions about SAIC financial statements and their pertinence to CMFO. Here is a FAQ to address some of these questions:

What is the SAIC?

The SAIC is the State Administration for Industry and Commerce. It is the Chinese government agency responsible for drafting and implementing legislation concerning the administration of industry and commerce in China. SAIC regulations are implemented by local AIC branches.

What’s the relationship between the SAIC and Foreign Invested Enterprises?

All Foreign Invested Enterprises (“FIEs”) are subject to an Annual Inspection by the local branch of the AIC. The inspection examines the investment paid by different parties, whether the FIE is undertaking normal business within the registered scope of business, whether there is any investment withdrawal, transfer of property, or evasion of debts, whether it has opened business, change or cancel registration as stipulated by regulations. The inspections also require companies to file audited financial statements.

Are SAIC financial statements audited?

Yes. You can verify that by speaking with lawyers, accountants and chief financial officers of legitimate Chinese companies. But there is also ample and indisputable evidence from the internet that Foreign Invested Enterprises must file audited financial statements with their local branch of the Administration for Industry and Commerce. Below I provide 7 links. You can see a discussion of the required audits for FIEs by searching for the word “audit” in each link.

1. LehmanBrown Explanation

This article, written by the accounting firm LehmanBrown, is self-explanatory and addresses the issue directly. It very clearly outlines that FIEs must file audited financial statements with their local AICs. I encourage you to call or email LehmanBrown with any questions on whether SAIC financial statements must be audited.

2. Dezan Shira Explanation

This is an article by the president of Dezan Shira & Associates, a consulting firm focusing on Asian accounting, tax and investment practices. It also addresses the issue of SAIC audits by FIEs directly.

3. “Annual Inspection of Enterprises and Privately Owned Businesses” by the Guangzhou AIC branch

This is a 2007 notice discussing the annual inspection of businesses for the Guangzhou AIC. The guide says: “An Audit Report is required for the following:… (b) Foreign-invested enterprises… The report shall conform to the requirements set forth in the Audit Code of China Certified Public Accountants promulgated by the Ministry of Finance.”

4. “A Guide of 2009 Joint Annual Inspection for Foreign-invested Enterprises” by the Zhejiang AIC branch

This is a 2009 guide for the Zhejiang AIC branch discussion the Annual Inspection for FIEs in Jhejiang. Under Documents to be Submitted, the guide lists “the 2008 Annual Balance Sheet and the Income Statement audited by the accounting firm”. These audit reports are also submitted to the Finance Bureau, State Taxation Bureau and Foreign Exchange Administration

5. “Circular on Implementing Joint Annual Inspection of Foreign-Funded Enterprises” for Huizhou AIC branch

Under the heading “Filling in and submission of an annual inspection report and other documents” this circular writes: “An enterprise shall conscientiously, truthfully and completely fill in the annual inspection report. Data entered must be consistent with the financial report audited by an accounting firm.” Later, it writes “An enterprise shall submit the following documents respectively to the various departments conducting the joint annual inspection… (2) the annual balance sheet and statements of profits and losses audited and verified by an accounting firm”

6. Another article from Dezen Shira – another article from Dezen Shira

7. A third article from Dezen Shira – a third article from Dezan Shira

Are SAIC financial statements filed electronically?

No. But they are available to the Chinese public. Foreigners can access them by hiring third-party firms in China to access them. Such third-party firms include local counsel or credit agencies.

Are SAIC financial statements filed only by Foreign Invested Enterprises?

No. But Foreign Invested Enterprises must undergo the Annual Inspection, which requires disclosure above and beyond the disclosure required by non-FIE companies.

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