According to the Turnbull Report, first published in 1999, the main objectives of internal control include the following:
1. Efficient conduct of business
2. Safeguarding assets
3. Preventing and detecting fraud and other unlawful acts
4. Ensuring completeness and accuracy of financial records
5. Timely preparation of financial statements
On 28 June 2008, the Ministry of Finance (MOF), the China Securities Regulatory Commission (CSRC), the National Audit Office (NAO), the China Banking Regulatory Commission (CBRC), and the China Insurance Regulatory Commission (CIRC) jointly released a circular on the release of The Basic Standard for Enterprise Internal Control (The Basic Standard) dated 22 May 2008 (企业内部控制基本规范). Subsequently, on 26 April 2010, relevant government regulatory agencies further issued the Application Guidelines for Enterprise Internal Control, Guidelines for Assessment of Enterprise Internal Control and Guidelines for Audit of Enterprise Internal Control (collectively referred to as the “Implementation Guidelines”) as detailed guidelines for Implementing ‘The Basic Standard’. It is mandatory for all listed companies established within mainland China to comply with ‘The Basic Standard’, while non-listed large and medium-sized Chinese enterprises are encouraged to adopt it.
Apart from large and medium-sized Chinese enterprises, multinational companies with a presence in China have also been placing significant focus on the internal control of their China subsidiaries, especially in the current complex economic environment. Due to travel restrictions and the inability to conduct on-site visits to their China subsidiaries during the pandemic, it has become even more important for these subsidiaries to adhere to group internal control policies. These companies view group internal control policies as guiding principles and develop localised policies tailored to China’s practices in order to enhance the efficiency and effectiveness of internal control in the local context.
While the fundamental principles of internal control remain largely consistent across different countries, there are specific features within China's internal control practices influenced by its legislative environment. One such feature is the use and maintenance of company stamps. Company stamp are reusable ink stamps that state the registered legal name of the company. Unlike the signatures commonly used in foreign countries, company stamps are employed on authorised documents, including commercial agreements, labour contracts, financial statements, tax filing documents, and more. Consequently, establishing proper internal control procedures to safeguard company stamps must be appropriately registered and maintained.
Our solutions are designed to enhance control effectiveness, streamline processes, reduce slippage, eliminate wastage, enhance revenue potential, and improve profits. In addition to traditional internal audit services, we offer outsourcing of internal audit, performance reviews for internal audit, assistance in establishing internal control functions, and internal audit training. Leveraging our industry knowledge and understanding of diverse cultural backgrounds, our professionals can assist multinational companies in designing and implementing localised internal controls aligned with group policies. We also provide continuous auditing, recommendations, and monitoring to ensure optimised internal controls and efficiency.
China Updates
Accounting and Taxation
- To advance the electronic voucher accounting data standards pilot work, the Ministry of Finance, the General Administration of Taxation, the People's Bank of China, the State Council State Assets Supervision and Administration Commission, the State Archives Bureau, the State Standardisation Administration Committee, the Office of the National Inter-Ministerial Joint Conference on Electronic Document Management, the Civil Aviation Administration, and China National Railways Group Limited jointly issued a notice on the implementation of electronic voucher accounting data standards. As a result, 9 types of electronic voucher accounting data standards have been developed and are now published.
Human Resources
- The Shanghai Municipal Human Resources and Social Security Bureau, Shanghai Municipal Finance Bureau, and Shanghai Municipal Education Commission issued a notice to enhance entrepreneurship support policy Initiatives in Shanghai. Under this notice, 4 types of entrepreneurial organisations, including small and micro enterprises, individual businesses, farmers' cooperatives, and private non-enterprise units, registered in Shanghai for less than 3 years are eligible to apply for social insurance subsidies.
The subsidy standards are as follows: Small and micro enterprises, individual businesses and private non-enterprise units will receive a subsidy equal to 50% of the pension, medical and unemployment insurance paid by employers. This subsidy will be calculated based on the lower limit of the employees' social insurance base for the month. Farmers' cooperatives will receive a subsidy equal to 50% of the pension and medical insurance, also calculated at the lower limit of the employees’ social insurance base for the month.
The number of subsidised individuals for each business organisation depends on the number of workers employed in Shanghai who have paid social insurance. However, the maximum number of subsidised people for social insurance is limited to 8 per month.
The maximum duration of the subsidy is 36 months from the date of registration of the business organisation.
Corporate Governance
- The Shanghai Administration for Market Regulation announced adjustments related to alcohol license. Starting from 10 July 2023, the “Alcohol Wholesale License” and “Alcohol Retail License” will no longer be issued separately. Instead, the operation of alcohol products will be incorporated into the scope of the “Food Operation License.” This adjustment aims to streamline regulatory processes and consolidate licensing requirements for alcohol-related businesses.
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Tan Lee Lee
Head of China
TanLeeLee@SBASF.com
Rita Boyle
Director, Business Advisory, International Desk
RitaBoyle@SBASF.com
Yeo Lee Soon
Director, China Business Advisory, Singapore
YeoLeeSoon@SBASF.com