(1) Inventories:
The LIFO method has been eliminated because IAS2 had already eliminated the LIFO method in the FY2003 Improvement Plan on the grounds that the cost flow and the physical flow are not consistent in most cases. In this standard system construction, for non-principle issues, as far as possible, consistent with the IFRS.
(2) "Borrowing Costs"
For the capitalization of borrowing costs, the capitalization of interest incurred on amounts borrowed for the production of large machinery, equipment, ships, and other assets with long production cycles is allowed to be added to the value of inventories and no longer to be charged directly to profit or loss, meaning that the assets that can be capitalized are no longer limited to fixed assets purchased and constructed using special loans.
(3) Investment Standards. The main revision is to adjust the classification of investments. The adjusted classification of investments is as follows:
A. Investments in trading securities, similar to the original short-term securities investments. They are carried at exchange market price at the end of the period (considered as fair value). Changes in fair value are recognized in profit or loss for the period, instead of the current lower of cost or market value method with one-sided adjustments.
l Held-to-maturity investments, which were originally long-term bond investments with fixed maturities, par values and interest rates and held for a long period of time, are primarily bonds. Such investments are measured at historical cost, but an impairment provision is required if they are impaired.
B. Equity investments, i.e. long-term equity investments. Its cost method, the equity method of accounting basically maintains the status quo, which is different from the IFRS only in the consolidated statement of the use of the equity method, can be called the "equity method of accounting", the standard at the same time to the accounting rather than just the statement of the presentation of the standard, which has been recognized by the IASB.
(4) Fixed Assets Standard. Basic changes are not significant, the main change is to determine the net residual value, the introduction of the concept of discounted future cash flows. As it is still difficult to directly draw on and fully introduce IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations", a change in the method of determining the net residual value of fixed assets has been requested in coordination with the IASB.
(5) Biological Assets Standard. This standard mainly regulates the accounting treatment of biological assets by agricultural enterprises, and classifies biological assets into three categories, namely, productive, expendable and public welfare, for separate accounting treatment. This standard is more operable and its provisions are closer to the current accounting practices of reclamation enterprises (another standard that is closer to the accounting practices of related enterprises is the "Oil and Gas Extraction" standard). The standard does not introduce fair value measurements, here partly due to the opposition of the agroforestry authorities during the research.
(6) Asset Impairment Guidelines. A number of indicators of asset impairment are clarified, as well as the recoverable amount being the higher of the agreed sales price less the net disposal costs or the present value of estimated future cash flows. It is also clarified that the provision for impairment is not reversible (this is in view of the fact that there is currently a significant problem of manipulation of profits through the provision and reversal of impairment allowances. This is one of the substantial differences between the new accounting standard system and IFRS, and the IASB has indicated that it will coordinate with the U.S. as the U.S. standard also does not allow for the reversal of impairment charges).
(7) Investment Property Standard. This is a new standard that regulates the treatment of items of land and property that are specifically for investment (as opposed to owner-occupation). A separate line item "investment property" will be included in the accounting statements, and the accounting treatment can be based on the cost model (which is not significantly different from fixed assets) or the fair value model, but the cost model is the dominant one. At the same time, it is stipulated that if there is an active market and the fair value can be determined and reliably measured, the fair value measurement model can also be adopted. No depreciation or impairment provision is made under the fair value measurement model. The Ministry of Finance's view is also to use fair value cautiously, but the use of fair value cannot be excluded from the standard, which is still different from IAS40, which is dominated by fair value, but has also been recognized by the IASB.
(8) Employee compensation standard. Corresponding to IAS19, employee compensation is also all the compensation paid by the enterprise to its employees, including wages, benefits, basic pension insurance, supplementary pension insurance, other social security contributions, housing fund and so on. The standard regulates content that is basically closer to the current policy. Compared with the Exposure Draft, the finalized draft may eliminate the provision of accrued benefit payable and replace it with a provision that all enterprises shall make actual expenses and make tax adjustments for the portion of employee welfare-type expenditures in excess of the pre-tax enterprise income tax expense limit as stipulated in the Tax Law. Supplementary pension insurance is also provided for in the Guidelines, and enterprise annuities have been operated on a trial basis in Shenzhen, Shanghai and other cities. Annuity contributions can be given to a trust administrator or other fiduciary investment management organization. Annuities are categorized as defined contribution plans and defined benefit plans in the IFRS, of which the treatment of defined contribution plans is basically the same as that of supplementary pension insurance. Defined benefit plans are not provided for in domestic regulations and are not available in practice in China, so they are not provided for in the standard.
(9) Debt restructuring guidelines. Instead of the current "one-size-fits-all" approach of including in capital surplus liabilities forgiven or underpaid by the debtor due to creditor concessions, the original debt restructuring guidelines are restored (but with restrictions), with gains from debt restructuring included in non-operating income, and the introduction of fair value as a measurement attribute for in-kind debt-credit operations. The Ministry of Finance is of the view that at this time, although there may not be an active trading market for the debt-supporting materials, their fair value can be determined through appraisal, and if the two parties are non-related parties, the negotiated price between the two parties can also be considered as the fair value.
(10) Income tax standard. This standard is one of the most difficult standards to implement in the new standard system. Compared with the current tax payable method, the concept of this standard has been changed significantly, with reference to the provisions of IAS 12, emphasizing the accrual principle and the concept of the balance sheet view, and the basis of calculation of income tax expense is obtained by adjusting certain items based on total profit (adjusting total profit according to the balance sheet view).
(11) Guidelines for non-monetary transactions. Fair value and valuation are introduced. If there is no active market, the price negotiated between the parties to an unrelated transaction without the intervention of a third party may also be considered as fair value.
(12) Business Combination Guidelines. The impact of this guideline is significant. The legal forms of business combinations are absorption, de novo and holding. According to whether the merging parties are under the same control or not, they are categorized into business combinations under the same control (currently the majority of business combinations in China) and business combinations not under the same control. Controlling mergers do not eliminate legal personality and are essentially equity investments, which are regulated in the Investment Standard; absorption mergers and mergers by de novo are regulated in this Standard. Currently, most of the business combinations in China are business combinations under the same control, such as the merger between enterprises controlled by the central and local SASACs, or the merger of two or more subsidiaries within the same enterprise group, which may not necessarily be a transaction between the merging party and the merged party out of their own volition, and the merger consideration is not a result of bargaining between the two parties, and it does not represent the fair value, therefore, it is not appropriate to use book value as the basis for accounting treatment in order to avoid profit manipulation. Therefore, the book value is used as the basis for accounting treatment to avoid profit manipulation. A business combination not under the same control (including merger by absorption and merger by de novo creation) may have bargaining between both parties and is the result of a voluntary transaction between both parties, and therefore has a fair value recognized by both parties and goodwill on purchase may be recognized. Impairment of goodwill is regulated separately in the Guidelines on Impairment of Assets and is only impaired and not amortized. The treatment of non-same-control business combinations in this standard is consistent with IFRS 3; same-control business combinations are not yet regulated by IFRS, so this provision is not regarded as a difference between Chinese accounting standards and IFRS.
(13) Standard on Consolidated Financial Statements. Compared with the "Provisional Regulations on Consolidated Financial Statements", the basic consolidation theory on which the standard is based has been changed from focusing on the parent company theory to focusing on the entity theory. The determination of the scope of consolidation is based on the existence of control, with a greater focus on substantive control, and the parent company is required to include in the scope of consolidation all subsidiaries over which it has control, regardless of the percentage of ownership. The standard excludes the proportionate consolidation method, but requires that subsidiaries whose business differs significantly from that of the parent company should also be included in the scope of consolidation. Subsidiaries with negative ownership interests should also be included in the scope of consolidation as long as they are going concerns.
(14) Earnings per share standard. This standard is a newly developed disclosure standard and does not address recognition and measurement issues. The focus is to address issues such as convertible bonds and warrants in the nature of options. The background of the development of this standard is that the continued use of the SEC's Codification Rule No. 9, "Calculation and Disclosure of Return on Net Assets and Earnings Per Share," issued in 2001, no longer meets the requirements. This standard draws on the provisions of IAS 33 to require the calculation of basic EPS and diluted EPS, and the concept of diluted EPS here is different from the diluted EPS in the SEC's Presentation Rule No. 9, and the calculation method is more scientific. At the same time, the EPS value is disclosed directly on the back of the income statement.
(15) Guidelines for disclosure of related party relationships and their transactions. This standard basically maintains the status quo with no significant changes. However, there is a substantial difference compared with IAS 24, which has removed the exemption that "enterprises under the control of the same state cannot be related parties simply because they are under the control of the same state", but the nature of state-owned enterprises in China is different from that of the West, and the state-owned economy is so large that the removal of the exemption is not operable. Therefore, the determination of related party relationships between SOEs will continue to be based on the current provision, i.e., SOEs are considered to be related only when there is an investment bond or other substantial control relationship between them. the IASB indicated that it will conduct a special study on the issue of related party relationships between SOEs in China at the next meeting of the IASB Board of Governors and will make special recommendations on the issues of reversal of provision for impairment, related party relationships between SOEs, donations and grants, and related party relationships between SOEs. The IASB said it would conduct a special study on the issue of related-party relationships between Chinese state-owned enterprises at the next IASB Board meeting, and that it would like to get China's help in the areas of reversal of provision for impairment of assets, related-party relationships between state-owned enterprises, donations and grants treated as investments by the state and other areas where there are substantial differences between Chinese accounting standards and the IFRS, as well as in the study of business combinations under one control.
(16) Donations and grants: IFRS adopts the comprehensive income approach for government grants and government assistance, but China is different in that the standard stipulates that the accounting treatment of research and development grants and other documents should be followed (e.g., treating the special grants as state investment, which should be recognized in the capital reserve); and only those that do not have any special stipulation should be recognized in the income. This is the third substantive difference between China's accounting standards and IFRS.
(17) Financial Instruments Standards. These standards have a greater impact on financial enterprises, for example, the classification of financial assets into four major categories. Derivative financial instruments are always measured at fair value and moved from off-balance sheet to on-balance sheet reflection.