China launches draft rules to ensure accurate reporting of profits

SHANGHAI (Reuters) – China’s finance ministry on Thursday published draft rules on accounting practices of financial firms focusing on ensuring profits are accurately reported.

China has been cracking down on financial risk and its firms are dogged by accusations of account manipulation, ranging from maintaining two sets of accounts to avoid taxation to falsifying sales.

Under the rules published on the Ministry of Finance’s official website, if money set aside for loss provision is more than twice that of regulatory requirements, the firm could be attempting to hide profits.

The loss provisioning ratio currently should be 150%.

The amount of tax a firm pays and also dividends paid to shareholders is linked to the profit it reports.

By the end of June, there were six A-share listed banks with a coverage ratio of more than 300%, including China Merchants Bank (SS:) and Bank of Shanghai (SS:), the Shanghai Securities News said on Friday.

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