Differences between Chinese and U.S. Accounting Standards and Their Inspirations for China's Capital Market
Table 1 - Specific differences in the content of Chinese and U.S. AS
Items | Accounting matters | Chinese AS | US GAAP |
Inventories | Cost recognition | The last in, first out (LIFO) method isn't allowed | The LIFO method is allowed |
Reversal of inventory impairment | For the provision for impairment that has been made, if the factors affecting its impairment have disappeared, the impairment of inventory can be reversed | The reversal isn't allowed | |
End-of-period measurement | Measured at the lower of cost or net realizable value | General inventories are measured at the lower of cost or market value; special inventories, such as precious metals, are measured at their net realizable value, even if they are greater than their cost | |
Fixed assets | Initial confirmation | Measured at historical cost, and fixed assets newly discovered, at replacement cost, revaluation is allowed | Measured at historical cost, no revaluation is allowed |
Separate depreciation | Separate depreciation must be made according to the different benefit patterns of the components | Individual depreciation is allowed | |
Adjustment of depreciation methods | As a change in accounting estimate, it cannot be adjusted retrospectively and is only applicable to future years | Adjusted retrospectively as a change in accounting policy | |
To be disposed of and not fully depreciated | Continue to depreciate | Stop depreciating | |
Intangible assets | Revaluation of value | Except for goodwill, revaluation is allowed | No revaluation is allowed |
Research and development expenses | Divided into research phases and development phases, with all research phase costs charged to current expenses; development phase costs can be capitalized if eligible or charged to current expenses if not | Charge all research and development stage expenses as current expenses | |
Amortization | Amortization should be based on the expected realization way of the economic benefits associated with intangible assets; if the expected realization way cannot be reliably determined, it should be amortized using the straight-line method. Intangible assets with indefinite useful lives are not amortized, but their useful lives should be reviewed in each accounting period | No amortization is required, but intangible assets need to be tested for impairment | |
Deferred income taxes | Initial confirmation | Only confirm the parts that are highly likely to occur, not the portions that cannot be expected to occur | Confirm them all, then evaluate and eliminate the unlikely ones |
Subsequent recognition of deferred tax assets | Reduce goodwill after business combinations until it reaches zero, and transfer the excess credit balance into the current net profit or loss | Reduce goodwill and other non-current intangible assets to zero after business combinations and transfer the excess credit balance into the current net profit or loss | |
Treatment of deferred tax liabilities before mergers and acquisitions | Only the purchase prices of those less than one year are adjusted; those greater than one year are recognized in equity | All purchase prices are adjusted | |
Contingent liabilities | Determination of the best estimate number for the initial measurement | If there is a continuous range of expenses required by estimated liabilities with the same likelihood of various outcomes occurring, it shall be determined based on the middle value, namely the average of the upper and lower limit amounts within that range | Determine based on the lower limit amount |
Borrowing fees | Investment income earned on temporary investments | Investment income earned on temporary investments of funds borrowed for the building of assets should reduce borrowing fees eligible for capitalization | Not deductible |
Share-based payments | Option compensation payable | Expenses are determined at each balance sheet date during the waiting period based on the grant date’s fair value and the best estimate of quantities | Expenses are determined based on the condition achievement date’s fair value and the best estimate of quantities |
Business combinations | Classification | Categorized as same-control and non-same-control | Indiscriminate |
Measurement of consolidated purchase price | The cost of consolidation under common control is based on book value, and that without common control is based on fair value | Based on fair value | |
Measurement of shareholding subsidiaries | The cost method is used for subsidiaries under control and available-for-sale financial assets, while the equity method is used for joint ventures and associates | The equity method is generally used | |
Financial reports | Disclosure of information | Comparative information for the previous period must be disclosed | It can be presented alone for a given year |
Contents of the financial statements | The three main financial statements are the core, with a lack of a specific breakdown of some accounts in the balance sheet and less content in other statements | Except for the three main financial statements, there are many other typical financial statements, such as the statement of shareholders' income, the statement of retained earnings, and the statement of comprehensive income | |
Notes section | Small information capacity and limited length | The content is rich and detailed, more specific, and in some cases even takes up more space than the accounting statements |
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