Tentative Provisions on Temporary Auditing Business Carried Out in Mainland China by Overseas Accounting Firms

Issuing Body: Ministry of Finance
Issuing Date: March 21, 2011
Effective Date: March 21, 2011

Since 1993, China has enforced rules governing audits of Chinese businesses by overseas accounting firms, the Tentative Provisions on Temporary Auditing Business Carried Out in Mainland China by Overseas Accounting Firms (Temporary Auditing Provisions). In March, the Ministry of Finance overhauled and re-issued those rules to provide more specific guidance to overseas auditing firms seeking to practice on a temporary basis in China. The 2011 Temporary Auditing Provisions took effect March 21, 2011.

Below is a summary of the 2011 Temporary Auditing Provisions.

Definition of  "Temporary Audit Business"

As defined in the 2011 Temporary Auditing Provisions, the term "temporary audit business" (Temporary Audit Practice) refers to business conducted inside China by overseas accounting firms (including those based in Hong Kong) entrusted by overseas clients to examine companies and other relevant institutions established in mainland China (Domestic Institutions). The scope of Temporary Audit Practice is limited to such auditing business entrusted by overseas clients. A Temporary Audit Practice report has no legal effect in mainland China. (Such a report cannot, for example, be used to satisfy a requirement to provide an audit report to a Chinese government agency.)

Application Process for Receiving a Temporary Audit Practice Certificate

To conduct business in China for an overseas client, an overseas accounting firm must file a written application to conduct its Temporary Audit Practice with the provincial finance department where the Temporary Audit Practice is located.

If the overseas accounting firm must carry out its Temporary Audit Practice in two or more provinces, autonomous regions, or municipalities directly under the central government in mainland China, the auditing firm must file its application with the Ministry of Finance. The overseas accounting firm cannot carry out Temporary Audit Practice in mainland China until the finance department grants approval and issues a Temporary Audit Practice Certificate. The finance department or Ministry of Finance usually issues its decision within 20 working days of receipt of the application documents.

Documents to be Submitted for the Temporary Audit Practice Certificate

Overseas firms seeking approval to conduct temporary auditing work in China must file the following documents:

• An application to conduct a Temporary Audit Practice in mainland China;
• Copies of the practicing license and business license issued by the country or region where the firm is located;
• An information sheet containing details regarding the client and the relevant Domestic Institution;
• Information on the certified public accountants to be dispatched to China and other relevant overseas personnel;
• A copy of the practicing certificates of certified public accountants to be dispatched and a copy of legal and valid identification documents of other relevant overseas working personnel;
• A copy of a power of attorney from the overseas client; and
• A copy of the confirmation letter by which the relevant Domestic Institution accepts the Temporary Audit Practice of such overseas accounting firm.

The overseas accounting firm, the overseas client, and the relevant Domestic Institution are responsible for the authenticity and integrity of all application materials.

Valid Period of the Temporary Audit Practice Certificate

The validity of a Temporary Audit Practice Certificate will vary depending on the location where the overseas auditing firm is based:

• The Temporary Audit Practice Certificate for an accounting firm from the Hong Kong or Macao Special Administrative Regions is valid for five years.
• A Temporary Audit Practice Certificate for an accounting firm from Taiwan is valid for one year.
• The Temporary Audit Practice Certificate for a foreign accounting firm is valid for six months.

When the Temporary Audit Practice Certificate expires, the accounting firm must apply for renewal of the certificate.

Conclusion

According to Ministry of Finance data for 2010, the agency gave approval to 33 overseas accounting firms to conduct temporary auditing business in China. The 2011 Temporary Auditing Provisions provide more specific guidance for overseas firms that wish to conduct and manage their Temporary Audit Practices in China, but it is too soon to determine the impact of the new rules.