"Generally Accepted Accounting Principles Are Not Generally Accepted In China ……"
Courtesy of Jan-Martin Feddersen at Immobilienblasen
Not even close to compete with the accounting stunts we see on a daily basis from Wall Street Finest ( see "Reported Earnings vs Operating Earnings" ) ….. 😉
Another View: Tunneling to True Profit in China Dealbook
Mark Dixon, a founder of the mergers and acquisitions adviser the1.com, which is active in mainland China, unwittingly unearthed some Chinese accounting tricks while valuing a local company
> Not a listed company / keine börsennotierte Firma
What with the world still reeling from the domino effect that Lehman Brothers’ balance sheet had on financial markets, the exposure of accounting frauds like the one at the Madoff fund and the final throes of the expenses scandal in the British Parliament, a trip to China promised to be a breath of fresh air in this atmosphere of fishy finances.
Hired by a client to help with an acquisition in China, I was given the job of deciding how much the buyer should pay for the business. That meant first calculating an accurate profit for the target company, its so-called normalized profit.
In the West, the process involves making a few small adjustments caused by things like no longer having to pay salaries to sellers if they aren’t going to stay at the company and other nonrecurring items. But it shouldn’t mean having to recalculate the entire income statement.
Generally Accepted Accounting Principles are not generally accepted in China. This is partly because the Chinese have their own accounting rules and partly because rules are for breaking
And it’s not just that some company owners are trying to confuse the tax authorities. It’s that, when they do so, they end up also confusing themselves.
The gymnastics they do with revenues and costs are so impressive that the Beijing Olympics should have added an event especially for accountants.
Markets with developed gray economies, like Italy, are well known for the practice of keeping one set of accounts for the government and another for the owners so they know what’s really going on. Chinese companies often dispense with the second set, hence the confusion. That’s probably true of other “developing gray economies.” …..
> At least they try to understate the true earnings power….. The opposite is true for almost every listed company out there ( except when it comes to their taxable profit )….. Go and read the entire piece….. Nice insight on Chinese mentality….
