Impact of the New Accounting Law on Company Accounting Management

The Standing Committee of the National People’s Congress issued the Decision on Amending the Accounting Law of the People’s Republic of China (the “Decision“) on June 28, 2024, which came into effect on 1 July 2024.

In this article, we summarize the major amendments that are most related to companies with our observations.

1. The State strengthens the construction of accounting informatization and encourages the use of modern information technology to carry out accounting work in accordance with the law, and the specific measures shall be formulated by the financial department of the State Council in conjunction with the relevant departments. – Article 8 Term 3 (new)

China is continuously promoting full-electronic invoices and abolishing paper invoices; at the same time, along with the upgrading of electronic accounting settlement and tax declaration online hall, the final accounting settlement must be completely paperless gradually.

In this perspective, company accountants should follow the changes, strengthen informatization management, and continue to learn to become professionals in line with the needs of the times.

2. Each unit shall go through accounting procedures and accounting for the following economic transactions:

1. The increase, decrease, and utilization of assets;
2. The increase or decrease of liabilities;
3. Increase or decrease in net assets (owner’s equity);
4. Increases or decreases in revenues, expenses, fees, and costs;
5. Calculation and processing of financial results;
6. Other matters requiring accounting procedures and accounting.

– Article 10 (Combined previous Article 10 and 25 as one with amendment)

Such a clause indicates the content of the main work of the company’s accountant: accounting for the relevant elements, the correct calculation of financial results and preparation of financial reports; and the responsibility for all elements.

3. Financial accounting reports provided to different users of accounting information shall be prepared consistently. Where relevant laws and administrative regulations stipulate that the financial accounting report shall be audited by a certified public accountant, the audit report issued by the certified public accountant and the accounting firm in which he or she works shall be provided together with the financial accounting report.  – Article 20 Term 2 (amended)

It is understood that some phenomena still exist, namely, the existence of internal set and external sets of accounting statements in some companies, and even the existence of multiple sets of accounting statements for viewing by different statement users.

It needs to be seriously pointed out that the basis and logic of the preparation of accounting statements should be consistent and should not be arbitrarily modified or financial reports made in favor of statement users.

4. Where forgery or alteration of an accounting document or account book,  preparation of a false financial accounting statement, concealment or intentional destruction of any accounting document, account book, or financial accounting statement that shall be preserved according to law, the financial department of the people’s government at or above the county level shallorder rectification within a certain period, give a warning, notify and criticize, and confiscate the illegal income.

• If the illegal income exceeds RMB two hundred thousand, the company may be fined, concurrently, not less than double and not more than ten times the illegal income;
• If there is no illegal income or the illegal income is less than RMB two hundred thousand, the company may be fined, concurrently, from RMB two hundred thousand yuan to RMB two million;
• The responsible manager and other direct responsible person may be fined not less than RMB one hundred thousand and not more than RMB five hundred thousand, and if in a serious case, a fine of not less than RMB five hundred thousand and not more than RMB two million may be imposed;
• If they are public officials, they shall also be punished according to the law;
• The relevant accountant shall not be allowed to engage in accounting work within five years;
• If they constitute a crime, shall be investigated for criminal responsibility in accordance with the law.”

– Article 41 (Combined previous Articles 43 and 44 with amendments)

This article establishes penalties for enterprises that falsify or alter accounting information. There are two points of concern.

First, if the illegal income is less than RMB 200,000, the company will be sentenced to a fine of RMB 200,000 to RMB 2 million, i.e., the lower limit is 200,000 yuan. Compared to the previous Accounting Law, the fine is RMB5,000 to RMB100,000 under the same conditions. This is a greater degree of increase.

Secondly, a fine of not less than RMB 100,000 and not more than RMB 500,000, i.e., the lower limit is RMB100,000, shall be imposed on the responsible person in charge and the principal accounting officer. Compared to the previous Accounting Law, the fine is RMB 3,000 to RMB 50,000 under the same conditions.

In addition, the accountant shall not be allowed to engage in accounting work within five years; if it constitutes a crime, criminal responsibility shall be investigated according to law. The direction of the amendment of the provisions shows that the penalties have been aggravated, especially for individuals, which serves as a deterrent.

5. Whoever suggests, instructs, or compels an accounting office, an accountant, or any other person to forge or alter any accounting document or account book or to prepare any untrue financial accounting statement or to conceal or intentionally destroy any accounting document, account book, or financial accounting statement, shall be given a warning, notification, and criticism by the financial department of the people’s government at or above the county level. A fine of not less than RMB two hundred thousand and not more than RMB one million may be imposed; where any serious case, a fine of not less than RMB one million and not more than RMB five million may be imposed, concurrently; for public officials shall also be punished in accordance with the law; if they constitute a crime, they shall be held criminally liable in accordance with the law. – Article 42 (previous Articles 45 with amendments)

This article strengthens the “authorize, instruct, order accounting institutions or accounting personnel” penalties if they falsify accounting information. The penalty fine is ranging from RMB 200,000 to RMB 1,000,000, depending on the circumstances. Compared with the previous Accounting Law, the fine for the same situation is RMB 5,000 to RMB 50,000.

In practice, there are indeed some cases that show that most accountants do comply with the provisions of the law and prepare financial reports in accordance with the law, but in many cases, the users of the statements, for their own selfish desires, force and coerce the accountants to falsify the books of accounts and prepare false accounting reports.

The amendment of this article is a wake-up call to statement users that they should abide by the law and not violate the provisions of the accounting law.

6. Whoever is penalized for violating the provisions of this Law shall be entered into the credit record in accordance with the relevant provisions of the State.

Whoever violates the provisions of this Law and concurrently the provisions of other laws shall be punished according to law by the interested departments within the scopes of their respective powers. – Article 47 (previous Article 49, with new term)

The credit system is important for personal credit management. If you violate the relevant provisions of the Accounting Law and are punished, you will be uniformly recorded in the personal credit system, which will have an impact on your future loans, entry and exit, and so on.

With that being said, company accountants need to be better equipped with accounting knowledge to be able to better respond to different situations when they encounter problems. For example, we’ve shared previously a related topic on What should a company do when receiving false special invoices. If you are interested, you may find the article for your perusal. Any questions or help, please feel free to contact us.

Should you have any questions, please contact us.