Circular of the Ministry of Finance on Printing and Distributing the Accounting Rules for Financial Enterprises

Circular of the Ministry of Finance on Printing and Distributing the Accounting Rules for Financial Enterprises

Cai Kuai [2001] No. 49

November 27, 2001

The relevant ministries and commissions of the State Council, the financial departments (bureaus) of all provinces, autonomous regions, municipalities directly under the Central Government and municipalities specifically designated in the State plan, the Financial Bureau of Xinjiang Production and Construction Corp. and the relevant financial institutions,

In order to implement the Accounting Law of the People's Republic of China and the Regulations on Business Enterprise Financial Reporting, regulate the financial accounting of financial enterprises and improve the quality of accounting information, the Accounting Rules for Financial Enterprises have been formulated by this Ministry and are hereby printed and issued. The Accounting Rules for Financial Enterprises shall be implemented among the listed financial enterprises as of January 1, 2002. Simultaneously, other joint stock financial enterprises are also encouraged to implement the Accounting Rules for Financial Enterprises. In case any problem occurs in the implementation of the Accounting Rules for Enterprises, please inform this Ministry by letter without delay.

Appendix: Accounting Rules for Financial Enterprises

Chapter I General Provisions

Article 1 In order to regulate the financial accounting of financial enterprises and improve the quality of accounting information, these Rules are formulated in accordance with the Accounting Law of the People's Republic of China, the Regulations on Business Enterprise Financial Reporting and relevant laws and regulations.

Article 2 These Rules shall apply to all kinds of financial enterprises established legally within the territory of the People's Republic of China (hereinafter referred to as financial enterprises, hereinafter the same), including banks (including credit unions, hereinafter the same), insurance companies, securities companies, trust and investment companies, futures companies, fund management companies, leasing companies and finance companies, etc.

Article 3 The financial accounting of financial enterprises shall be based on constant and normal operation activities.

Article 4 Financial enterprises shall divide accounting periods, settle the accounts and prepare financial accounting reports according to accounting periods. The accounting periods shall be year, half, quarter and month. The beginning date and ending date of each year, half, quarter and month shall be defined according to the calendar year. The half, quarter and month shall be regarded as the interim accounting periods.
The period ends as mentioned in these Rules shall refer to the ends of month, quarter, half and year.

Article 5 The recording currency of financial accounting of financial enterprises shall be RMB.
Financial enterprises of which the incomes and expenditures are denominated in a currency other than RMB may choose a currency as the recording currency, but the financial accounting reports shall be converted into RMB.
The financial accounting reports of Chinese financial enterprises established abroad shall be denominated in RMB by conversion before being sent back to China.

Article 6 Financial enterprises shall adopt the debit-credit bookkeeping method.

Article 7 The financial accounting of financial enterprises shall comply with the following principles:
1. The financial accounting of financial enterprises shall be based on the transactions or items actually incurred to truly reflect the financial status, operating performance and cash flow.
2. Financial enterprises shall make accounting according to the nature of transactions or items and the economic conditions, and shall not take just their legal forms as the basis for accounting.
3. Financial enterprises shall provide accounting information which can reflect their financial status, operating performance and cash flow, so as to meet the needs of users of the accounting information.
4. Financial enterprises shall keep the same accounting methods during all the periods and shall not change the method at will. In case the method needs to be changed, financial enterprises shall explain the change in the footnote of accounting statements, explaining the content to be changed, the reason, the accumulated sum affected by the change, and the reason why the accumulated sum affected by the change cannot be reasonably defined.
5. Financial enterprises shall make financial accounting according to the prescribed accounting method, and the accounting index shall be coherent and comparable.
6. Financial enterprises shall make financial accounting on time, and shall not make financial accounting ahead of time or with delay.
7. Financial enterprises shall keep financial accounting clear and distinct to make it easy for understanding and use.
8. Financial enterprises shall keep accounting on the accrual basis. The currently realized revenue and incurred expenditure or the expenditure payable, no matter whether the money has been received or paid, shall be accounted for as the current revenue and expenditure; revenue and expenditure that does not belong to the current period, no matter whether the money has been received or paid, shall not be accounted for as the current revenue and expenditure.
9. When making financial accounting, financial enterprises shall ensure that the revenue is consistent with the corresponding costs and expenditure, all the incomes and the related costs and expenditures within the same accounting period shall be recognized within the accounting period.
10. All the properties of financial enterprises shall be measured according to the actual costs when enterprises acquire the property. In case the properties depreciate, financial enterprises shall prepare the corresponding depreciation reserves according to these Rules. Unless there are other specific regulations other than laws, administrative regulations and national uniform accounting regulations, financial enterprises shall not adjust the book value on their own.
11. The financial accounting of financial enterprises shall comply with the principle of prudence. The assets and incomes shall not be overstated, and the liabilities and expenditures shall not be understated.
12. Financial enterprises shall reasonable divide income expenditure and capital expenditure when making financial accounting. All the expenditure with benefit related only to the current accounting year shall be regarded as revenue expenditure; all the expenditure with benefit related to several accounting years shall be regarded as capital expenditure.
13. The financial accounting of financial enterprises shall comply with the principle of importance. All the important accounting items, which may have great impact on assets, liabilities, profits and losses, and which may have impact on the reasonable judgment made by the users of the financial accounting report, shall be processed according to the prescribed accounting method and procedure, and shall be fully disclosed in the financial accounting report; all the secondary accounting items may be processed with the simplified method and procedure, provided that these items shall not affect the authenticity of accounting information or mislead the users of accounting information into making wrong judgment.

Article 8 Financial enterprises shall formulate their accounting methods which do not breach these Rules and which suit the specific situation of the enterprises in accordance with the relevant accounting laws, administrative regulations and these Rules.

Chapter II Assets

Article 9 The term "asset" shall refer to all the resources which are formed in the past transactions or events and owned or controlled by an enterprise and which are expected to bring economic benefits to the enterprise.
Assets of financial enterprises shall be classified according to liquidity, mainly including current assets, long-term investment, fixed assets, intangible assets and other assets.
Financial enterprises engaged in deposit and loan business shall divide the loans into the short-term loan, medium-term loan and long-term loan according to the term of the loan.

Section 1 Current Assets

Article 10 The current assets shall refer to the assets which may be liquidated or consumed within 1 year (including 1 year).

Article 11 The current assets of financial enterprises shall include the cash on hand, deposits, call loans to banks, discounts, interests receivable, dividends receivable, premiums receivable, re-insurance premium receivable, trust service fee receivable, refundable deposits, proprietary trading securities, liquidation reserves, entrusted securities issuance, entrusted bonds redemption, resale securities purchase, short-term investment and short-term loans, etc.
1. The deposits shall refer to the money deposited in the Central Bank, banks or non-banking financial institutions by financial enterprises for the use of settlement, cash withdrawal and payment, and the reserves paid to the Central Bank according to certain ratio of the deposit-taking, including the money deposited in the Central Bank and other banks. The deposits shall enter the account according to the actual amount.
2. The call loans to banks shall refer to the capital position borrowed among financial institutions for the needs of capital turnover. The call loans shall enter the account according the actually borrowed amount.
3. The discounts shall refer to the money that financial enterprises use to provide discount service for customers or other financial institutions which hold undue commercial bills. When providing discount service, the discount shall enter the account according to the face amount.
4. The interest receivable shall refer to the interest receivable calculated according to the applicable rate and the interest bearing period and other interest when financial enterprises issue loans and buy bonds. The interests receivable shall enter the account according to the interests calculated and recognized according to the principal of loans issued or the face amount of bonds bought and the applicable interest rate of the current period.
5. The dividends receivable shall refer to the cash dividends receivable of financial enterprises from equity investment. The dividends receivable shall enter the account according to the amount receivable of the current period.
6. The premiums receivable shall refer to the premium receivable of financial enterprises from the policy holders but unpaid by the policy holders. The premiums receivable shall enter the account according to the amount receivable of the current period.
7. The re-insurance premium receivable shall refer to various premiums receivable incurred when financial enterprises provide the reinsurance service among themselves. The reinsurance premium shall enter the account according to the amount specified in the reinsurance bill when enterprises receive the reinsurance bills.
8. The service fee charge receivable shall refer to the various service fees receivable by financial enterprises which provide trust business. The trust service fee receivable shall enter the account according to the charge amount receivable of the current period.
9. The refundable deposits shall refer to the deposits deposited by financial enterprises according to regulations, including the transaction earnest money, refundable re-insurance reserves, refundable claim deposits refundable general average deposits and other refundable deposits, etc. The refundable deposits shall enter the account according to the actual amount refunded.
10. The proprietary trading securities shall refer to the securities, bonds, funds and warrants and other trading securities which are bought by financial enterprises for the securities bid-offer spread and may be sold off at any time and shall not be held for more than 1 year, or which may not be sold off at any time but there is less than 1 year(including 1 year) left from the issuance date or purchase date till the maturity date. The proprietary trading securities shall enter the account according to the actual costs on the settlement date. The actual costs shall include the purchase price and relevant tax and fees.
11. The liquidation reserves shall refer to the money deposited in the appointed clearing agency by financial enterprises engaged in securities business for liquidation and delivery of securities transactions. The liquidation reserves shall enter the account according to the actual deposited amount.
12. The securities issued through entrustment shall refer to the securities and bonds issued by financial enterprises through entrustment. The securities issued through entrustment shall enter the account according to the price prescribed in the underwriting contract.
13. The bonds redempted through entrustment shall refer to the money actually paid or paid in advance by financial enterprises when accepting entrusted bonds redemption. The bonds redempted through entrustment shall enter the account according to the actual redeemed amount.
14. The resale securities purchase shall refer to the fund financed by financial enterprises for securities resale business according to regulations. The resale securities purchase shall enter the account according to the actually paid amount.
15. The short-term investment shall refer to the bonds and other investment which may be liquidated at any time and which shall not be held for more than 1 year (including 1 year).
(1) The short-term investment shall be measured according to the initial investment costs when being acquired. The initial investment costs of short-term investment shall be defined according to the following methods:
A. In respect of the short-term investment purchased by cash, the initial investment costs shall be the all the price actually paid, including taxes, service fees and relevant fees. The due but un-withdrawn price bonds interest contained in the actually paid price shall be recognized as receivables and enter the account separately, and shall not be included in the initial investment costs of short-term investment.
B. The bonds received from investors as the invested fund for the use of short-term investment shall be recognized as the initial investment costs of short-term investment according to the value recognized by all the investing parties.
(2) The interest of short-term investment shall be used to offset the book value of investment when being received, unless the interest has already been accounted into the interest receivable.
(3) Financial enterprises shall measure the short-term investment at period ends according to the costs or the market price, which is lower.
(4) When short-term investment is disposed of, the difference between the book value of short-term investment and the actually acquired money shall be recognized as the profits and losses of the current period.

Section 2 Loans

Article 12 The term "loan" shall refer to the monetary fund which is provided by financial enterprises to the borrower and of which the principal shall be repaid with interest according to the prescribed interest rate and interest period.
Loans issued by financial enterprises mainly include short-term loan, medium-term loan and long-term loan.
1. The short-term loan shall refer to various loans with term of no more than 1 year (including 1 year) issued by financial enterprises according relevant regulations, including the pledge loan, mortgage loan, guarantee loan, credit loan, and import and export mortgage exchange, etc. The loans with term of no more than 1 year (including 1 year) issued by financial enterprises engaged in the trust business with self-owned funds shall also be recognized as the short-term loan.
The principal of short-term loan shall enter the account according to the amount actually lent. At period ends, the interest receivable shall be calculated according to the principal of loan and applicable interest rate. The mortgage loan shall enter the account according to the actual amount lent to the borrower.
2. The medium-term loan shall refer to various loans with term of 1 up to 5 years (including 5 years) issued by financial enterprises.
3. The long-term loan shall refer to various loans with term of no less than 5 years (excluding 5 years) issued by financial enterprises.

Article 13 The accounting of medium-term and long-term loans issued by financial enterprises shall follow the following principles:
1. The principal and interest shall be accounted for separately. The medium-term and long-term loans issued by financial enterprises shall enter the account according to the amount actually lent. At period ends, the interests receivable shall be calculated according to the principal of loan and applicable interest rate; and the principal of loan and the interests shall be accounted for separately.
2. The commercial loan and policy loan shall be accounted for separately.
3. The self-run loan and entrusted loan shall accounted for separately. The self-run loan shall refer to the loan issued by financial enterprises with legally raised fund on their own, and financial enterprises shall bear the risks and collect the principal and interests. The entrusted loan shall refer to the loan issued by financial enterprises (the trustee) with the fund provided by clients; financial enterprises shall issued the bond according to the loan object, usage, amount, term, and interest rate recognized by the clients, supervise the usage of bond, and assist clients to collect money; clients shall bear the risks. When issuing entrusted bonds, financial enterprises shall only collect the service fee, and shall not pay advance money. The service fee of entrusted bond to be collected by financial enterprises shall be recognized according to the revenue recognition conditions.
4. The accrual loan and non-accrual loan shall be accounted for separately. The non-accrual loan shall refer to the loans of which the principal or interests fails to be collected within 90 days from the due date. The accrual loan shall refer to a loan other than the non-accrual loan. The principal or interest of loan shall be accounted for separately if it fails to be collected within 90 days from the due date.
When the accrual loan turns into non-accrual loan, the entered interest revenue shall be written off against the interest receivable.
After the accrual loan is converted into non-accrual loan, when the refund of the loan has been collected, the principal shall be written off first; after the principal has been fully collected, the additional refund shall be recognized as the interest revenue of the current period.

Article 14 When issuing loans, financial enterprises shall prescribe the loss reserves of accrual loan at period ends in accordance with these Rules.
The accrual loan and non-accrual loan shall be listed separately in the balance sheet.

Section 3 Long-term Investment

Article 15 The long-term investment shall refer to the investment other than short-term investment, including various equity investment, bond investment which can not be liquidated or can not be liquidated at any time, other debt investment and other long-term investment, of which the ownership duration is to last for more than 1 year (excluding 1 year).
The long-term investment shall be accounted for separately and listed in a separate item in the balance sheet.

Article 16 The accounting of long-term equity investment of financial enterprises shall follow the following provisions:
1. The long-term equity investment shall enter the account according to the initial investment costs when being acquired.
(1) In respect of long-term equity investment purchased by cash, the initial investment costs shall be the entire price actually paid (including taxes, service fees and relevant fees); in case the actually paid price includes cash dividend which has been announced but has not been collected, the balance of actually paid amount minus cash dividend which has been announced but has not been collected shall be the initial investment costs.
(2) In respect of long-term equity investment acquired through administrative transfer, the book value of the transferor shall be the initial investment costs.
(3) In respect of long-term equity investment converted from non-cash assets, the book value of converted assets plus the relevant taxes receivable shall be the initial investment costs.
(4) In respect of long-term equity investment acquired in debt-to-equity way, the book value of the creditor's rights from actual debt converted into equity shall be the initial investment costs.
2. The accounting of long-term equity investment shall adopt the costs method or equity method according to different situations.
In case financial enterprises have no control or joint control of the invested unit, and have no major impact on the invested unit, the accounting of long-term equity shall adopt the costs method; in case financial enterprises have control or joint control of the invested unit, or have major impact on the invested unit, the accounting of long-term equity investment shall adopt the equity method. In general, financial enterprises whose investment on another unit accounts for 20% or more of the invested unit's total voting right capital, or of which the investment accounts for less than 20% but has major impact, shall adopt the equity method. Financial enterprises, of which the investment accounts for less than 20% of the invested unit's total voting right capital, or of which the investment accounts for 20% or more but has no major impact, shall adopt the costs method.
3. When the costs method is adopted, except the additional investment (e.g. converting the cash dividends receivable or profits into investment) or recouping capital outlay, the book value of long-term equity investment shall remain the same in general. The payout profits or cash dividends announced by the invested unit shall be recognized as the investment income of the current period.
4. When the equity method is adopted, the investment shall be measured by the initial investment costs at first, and then the book value of investment shall be adjusted according to the change in the owners' equity share of the invested unit owned by the investor.
(1) When the equity method is adopted, the balance of the initial investment costs and the owner's equity share of the invested unit owned by the investor shall be recognized as the balance of equity investment, which shall be amortized according to a certain period and be accounted into the loss and profits.
In case the investment term has been prescribed in the contract, the amortization term of the balance of equity investment shall be the investment term. In case the investment term has not been prescribed in the contract, the amortization term of the balance shall be no more than 10 years in case the initial investment costs is more than the owner's equity share of the invested unit owned by the investor; or shall be no less than 10 years in case the initial investment costs is less than the owner's equity share of the invested unit owned by the investor.
(2) When the equity method is adopted, the book value of investment shall be adjusted according to the invested unit's net profits realized or net loss incurred in the current year, which shall be owned or shared by the investor after acquiring the equity investment, and shall be accounted for as the investment profits and losses of the current period. Financial enterprises shall calculate the amount receivable according to the payout profits or cash dividends announced by the invested unit, and decrease the book value of investment. After confirming that net loss of the invested unit has incurred, financial enterprises shall reduce the book value of investment to zero; if the invested unit has realized net profits in the following periods, the investor shall calculate the profits and losses, and resume to recognize the book value of investment according to the excess amount in case the calculated profits share exceeds the unrecognized loss share.
When adjusting the book value of investment and recognizing the investment profits and losses according to the net profits and losses of the invested unit, financial enterprises shall calculate on the basis of the net profits and losses incurred after acquiring the equity of the invested unit. In case of any other change in the owner's equity other than the net profits and losses of the invested unit, financial enterprises shall also adjust the book value of investment according to the specific situation.
(3) In case the accounting method of long-term equity investment has changed from the costs method to equity method due to additional investment and other reasons, the initial investment costs shall be the adjusted book value of equity investment plus the additional investment costs when financial enterprises actually have control or joint control of the invested unit, or have major impact on the invested unit; the difference between the initial investment costs and the owner's equity share of the invested unit owned by the investor shall be recognized as the equity investment balance, and shall be amortized and accounted into the profits and losses in accordance with these Rules.
In case financial enterprises no long have control or joint control of the invested unit, or have major impact on the invested unit due to recouping capital outlay or other reasons, financial enterprises shall stop adopting the equity method and adopt the costs method, and the book value of investment shall be the new investment costs. Afterwards, when the invested unit announces the allocation of profits or cash dividends, the amount already accounted into the book value of investment shall be withdrawn as the new investment costs, and shall offset against the investment costs.
5. In case financial enterprises change the investment objective and convert the short-term investment (including self-running securities) into long-term investment, the new investment costs of long-term investment shall be the value carried over according to the costs of short-term investment (including self-run securities) or the market price, which is lower. In case the long-term investment is to be disposed of but not to be adjusted to short-term investment (including self-run securities), the long-term investment shall be disposed of as long-term investment in the account.
6. When equity investment is disposed of, the difference between the book value of investment and the actually acquired money shall be accounted for as the profits and losses of the current period.

Article 17 The accounting of long-term creditor's investment of financial enterprises shall follow the following provisions:
1. The actual costs of long-term creditor's right investment when being acquired shall be recognized as the initial investment costs.
In respect of the long-term bonds investment purchased by cash, the initial investment costs shall be the entire price actually paid (including taxes, service fees and relevant fees) minus the due but uncollected bond interests. The taxes, service fees and relevant fees may be directly accounted into the investment income of the current period instead of the initial investment costs if the amount paid is relatively small.
2. In respect of the long-term creditor's investment, the interest income shall be periodically calculated according to the book value and the coupon rate.
The difference between the book value of bonds and the balance of the initial investment costs of long-term bond investment minus the due but uncollected bonds interests, undue bonds interests and relevant taxes accounted into the initial investment costs, shall be the bonds premium or discount; the bonds premium or discount shall be amortized when the relevant bonds interest income within the period is recognized.
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