What are the revenue & cost accruals?
Expense / cost is not recognized on a cash flow basis, but at the time of its contribution to revenue. A cut-off test is often employed to check if revenue and cost are properly accrued at the year end. These concerns are based on one important accounting principle – prudence. Recently, there is a developing trend of FIEs, instead of recording profits, reporting a loss. With this growing, the tax bureau and government are devoting more effort in auditing FIEs. As a result, if a company reports profits below the industry average or is in deficit in consecutive years, the auditors will monitor the possibility of any potential attempt to conceal profit to evade taxes and will evaluate transfer pricing issues within related party transactions. Another issue that needs to be catered for, especially for 2003 audits is that in line with China WTO agreements, the PRC Central Government promulgated its “Revised Uniform Accounting System” and “Basic Accounting Standard for Foreign Investment Ent
