Circular of the Ministry of Finance on Issuing the Accounting System for Non-governmental Non-profit Organizations

Circular of the Ministry of Finance on Issuing the Accounting System for Non-governmental Non-profit Organizations
Circular of the Ministry of Finance on Issuing the Accounting System for Non-governmental Non-profit Organizations

Cai Kuai [2004] No.7

August 18, 2004

Relevant ministries and commissions under the State Council, related institutions directly under the State Council, finance departments (bureaus) of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, as well as the Financial Bureau of Xinjiang Production and Construction Corps,

In order to regulate the accounting of non-governmental non-profit organizations and improve the quality of the accounting information, the Accounting System for Non-governmental Non-profit Organizations has been formulated by the Ministry of Finance in accordance with the Accounting Law of the People's Republic of China as well as other relevant state laws and administrative regulations. It is hereby issued to you for implementation as of January 1, 2015. Where you have any problem during the implementation thereof, please report it to the Ministry of Finance in time.

Accounting System for Non-governmental Non-profit Organizations

Chapter I General Provisions

Article 1 This System is formulated in accordance with the Accounting Law of the People's Republic of China as well as other relevant state laws and regulations in order to regulate the accounting of non-governmental non-profit organizations and ensure the authenticity and completeness of the accounting information.

Article 2 This System applies to all non-governmental non-profit organizations having the characteristics specified in this System and established in accordance with the law within the territory of the People's Republic of China (hereinafter referred to as "Non-governmental NPOs"). Non-governmental NPOs include social organizations, foundations and private non-enterprise entities registered in accordance with the laws and administrative regulations of the State, as well as Buddhist and Taoist temples, mosques and churches.
A Non-governmental NPO to which this System applies shall have all the following characteristics:
1. The Non-governmental NPO does not have as its purpose the making of profits;
2. A resource provider does not aim at obtaining any economic return for investing any resources in the Non-governmental NPO; and
3. A resource provider does not have the ownership of the Non-governmental NPO.

Article 3 The accounting of a Non-governmental NPO shall take its transactions or events as objects, so as to record and reflect all the economic and business activities of the Non-governmental NPO.

Article 4 The accounting of a Non-governmental NPO shall be carried out under the premise that the Non-governmental NPO operates as a going concern.

Article 5 The accounting of Non-governmental NPOs shall be divided into accounting periods, with the accounts settled and financial reports prepared by periods.

Article 6 Renminbi (RMB) shall be the recording currency for the accounting of Non-governmental NPOs. A foreign currency may be adopted as the recording currency for Non-governmental NPOs which conduct business transactions mainly in foreign currencies; however, for the preparation of financial reports, the foreign currency shall be stated in RMB.
For the accounting of foreign currency business, Non-governmental NPOs shall establish corresponding foreign currency accounts. Foreign currency accounts consist of those for foreign currency cash, foreign currency bank deposits, and creditors' rights and debts settled in foreign currency. Such accounts shall be set and accounted for separately from the accounts under the same category in RMB.
Where a Non-governmental NPO has foreign currency business, it shall conduct bookkeeping by changing the relevant foreign currency amount into the recording currency amount. Unless as otherwise provided, all the accounts in connection with a foreign currency business shall be subject to the exchange rate at the time when the business occurs. Where the fluctuations in the exchange rate are small, the exchange rate at the beginning of the period in which the business occurred may also be adopted.
The foreign currency balance in all types of foreign currency accounts shall be converted into the amount in the recording currency at the ending exchange rate at the end of the period. The difference between the amount in the recording currency converted at the ending exchange rate and the book amount in the recording currency shall be recorded in the expenses of the current period as exchange gain or loss. However, the exchange balance on the principal and interest of special borrowings in foreign currency relating to the acquisition and construction of fixed assets incurred during the period of capitalization of the borrowing costs shall be capitalized and recorded in the cost of fixed assets. The period of capitalization of the borrowing costs shall be determined in accordance with Article 35 of this System.
For the purpose of this System, foreign currency business refers to business such as payments and receipts, and current account settlement conducted in any currency other than the recording currency.
For the purpose of this System, the special borrowings refer to the money specifically borrowed for the acquisition and construction of fixed assets.

Article 7 The accounting of Non-governmental NPOs shall be carried out on an accrual basis.

Article 8 Non-governmental NPOs shall observe the following principles when carrying out the accounting:
1. The accounting shall be based on the transactions or events that occur actually, to faithfully reflect the information on the financial position, business activities and cash flows of the Non-governmental NPOs.
2. The information obtained through the accounting shall be able to satisfy the needs of users of the accounting information (such as donors, members, and regulators).
3. The accounting shall be conducted in accordance with the substance of a transaction or event rather than by only taking the legal form of such transaction or event as the basis.
4. The accounting policies adopted shall be consistent in all periods and shall not be changed arbitrarily. If any change is required, Non-governmental NPOs shall disclose in their notes to the accounting statements the content of and the reasons for the change, the cumulative effects of the change, as well as the reasons for inability to reasonably determine the cumulative effects.
5. The accounting shall be conducted in accordance with the prescribed accounting treatment methods, and the accounting information shall be subject to unified criteria and be comparable to each other.
6. The accounting shall be carried out timely rather than ahead of or behind the schedule.
7. The accounting and prepared financial reports shall be clear, and easy to understand and apply.
8. For the accounting, the expenses incurred shall be proportional to the relevant income, and all the income and related expenses incurred in the same accounting period shall be recognized within the said accounting period.
9. An asset shall be measured at the actual cost upon acquisition; however, where this System provides any special provisions, the measurement shall be conducted on the measurement basis set out in such special provisions. Then, any adjustment to the book value of the asset shall be made subject to this System. Unless as otherwise provided by the laws, administrative regulations and national standard accounting system, no Non-governmental NPO may adjust the book value of assets without authorization.
10. The accounting shall comply with the principle of prudence.
11. For the accounting, reasonable division shall be made between the expenditures to be recorded in the expenses of the current period and those to be capitalized.
12. The accounting shall follow the materiality principle. Material accounting events having relatively significant impacts on assets, liabilities, net assets, income and expenses and thus affecting users of the financial reports in making reasonable judgments must be treated pursuant to prescribed accounting measures and procedures and be fully disclosed in the financial reports; as for immaterial accounting events, under the premises that the authenticity of the accounting information is not affected and accounting information users are not misled in making correct judgments, appropriate simplification may be made in their treatment.

Article 9 Non-governmental NPOs shall adopt the method of debit-credit bookkeeping to keep accounts.

Article 10 Accounting records shall be made in Chinese. In ethnic autonomous regions, accounting records may also be made in a locally accepted ethnic language at the same time. The representative offices or agencies established by foreign non-governmental NPOs in accordance with the law within the territory of the People's Republic of China may also use a foreign language for bookkeeping at the same time.

Article 11 Non-governmental NPOs shall, in accordance with the provisions of relevant accounting laws, administrative regulations and this System, develop their accounting measures in light of their specific circumstances.

Article 12 The requirements on completing accounting vouchers, registering accounting books and managing accounting records by Non-governmental NPOs shall be subject to the Accounting Law of the People's Republic of China, the Regulations on Basic Accounting Practice, the Measures on the Administration of Accounting Records and other provisions.

Article 13 Non-governmental NPOs shall, in accordance with the relevant state laws and administrative regulations as well as internal accounting control rules and in light of the characteristics of their business activities, develop an appropriate internal accounting control system, to strengthen internal accounting supervision and improve the quality and management of accounting information.

Chapter II Assets

Article 14 Assets refer to the resources generated from previous transactions or events and owned or controlled by Non-governmental NPOs, which are expected to bring economic benefits or service potential to the Non-governmental NPOs. Assets shall be divided by liquidity into current assets, long-term investments, fixed assets, intangible assets, fiduciary assets, etc.

Article 15 Non-governmental NPOs shall, regularly or at least at the end of half of the year, inspect whether short-term investments, accounts receivable, inventories, long-term investments or other assets have suffered impairment; if yes, the provision for impairment shall be made, and the impairment loss shall be recognized and recorded in the expenses of the current period. For fixed assets, intangible assets and other assets, if material impairment occurs, a provision for impairment shall also be made, and the impairment loss shall be recognized and recorded in the expenses of the current period. Where the value of an asset for which the provision for impairment has been made is recovered in any future accounting period, the recognized impairment loss shall be reversed in part or in full within the scope of provision for impairment made for the asset to offset the expenses of the current period.

Article 16 Cash assets donated to and accepted by Non-governmental NPOs shall be recorded as the amount actually received. For non-cash assets donated to and accepted by Non-governmental NPOs, such as short-term investments, inventories, long-term investments, fixed assets and intangible assets, the entry value shall be determined in the following methods:
1. Where the donor provides the relevant voucher (such as the invoice, customs declaration form, or relevant agreement), the entry value shall be the amount indicated on the voucher. Where there is significant difference between the amount indicated on the voucher and the fair value of the donated asset, the fair value of the donated asset shall be taken as its actual cost.
2. Where the donor does not provide the relevant voucher, the donated assets shall be recorded at its fair value.
Donated services accepted by Non-governmental NPOs will not be recognized, but relevant disclosure shall be made in the notes to the accounting statements.

Article 17 For the purpose of this System, the fair value refers to the amount in which the parties to an arm's length transaction who are familiar with the situation conduct asset exchange or debt service on a voluntary basis. The fair value shall be determined in the following order:
1. Where there is an active market for identical or similar assets, the fair value shall be determined according to the market price for the identical or similar assets;
2. Where there is no active market for identical or similar assets, or it is impossible to find any identical or similar assets, the fair value of the asset shall be determined by using a reasonable pricing method.
Under the circumstance that the fair value shall be adopted as specified in this System, if any conclusive evidence shows that the fair value of an asset cannot be measured reliably, a Non-governmental NPO shall set up a subsidiary ledger to separately register the name, quantity, source, use and other information of the acquired asset, and make relevant disclosure in the notes to the accounting statements. In subsequent accounting periods, where the fair value of the asset can be reliably measured, the Non-governmental NPO shall recognize the asset in the accounting period when the asset can be reliably measured and carry out the measurement at the fair value.

Article 18 Non-governmental NPOs shall treat non-monetary transactions under the following principles:
1.
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