Doing Business in China For Dummies®

Controlling Financial Risks

Managing your financial risks involves keeping on top of things such as use of your company’s resources and expenses. Unfortunately, many foreign investors don’t think about thorough financial controls until something goes wrong. Implementing comprehensive controls at the beginning is a good idea for at least two reasons:

✓	You don’t want your company to get ripped off.
✓	Having good financial controls in place can help you get good information for your management.

If you’re always aware of how much your company’s spending for what, spotting trends and problems early on is easier.

To help you understand why and where you need controls in China, we discuss the big picture of Chinese accounting as well as some of the problems to be on the lookout for.

Counting beans differently

China is in the process of adopting modern accounting methods and standards, but it’ll take a while before it catches on. Right now, China is playing catch-up. China didn’t even introduce a double-entry bookkeeping system until the mid-1990s.

Western systems focus on facilitating management’s internal control, so they have numerous income statement accounts. Usually, Western controllers have to thoroughly understand the business and its processes in order to do their jobs.

However, Chinese accounting has historically focused on the balance sheet because the government looks to exert control on businesses through accounting (for example, through capital accounts — see Chapter 10). ...