New Financial Statement Format Highlights R&D Expenses for General Enterprises in China

On June 15, 2018, the Ministry of Finance issued a notice (CaiKuai [2018] No. 15) revising the format of annual financial statements for general enterprises. One of the revisions concerns the income statement format in which research and development (R&D) expenses are no longer disclosed as a secondary item under management expenses in the notes to the financial statements, but are instead reported as a separate item within the income statement to reflect the costs incurred in the process of R&D activities. Additionally, for listed companies, items related to R&D are no longer disclosed within management expense details but are instead separately disclosed as constituent items of R&D expenses in the income statement notes. It is evident that the new revised reporting format places R&D expenses in a more prominent position, thereby increasing the disclosure requirements of R&D expenses in the financial statements of enterprises and improving the quality of information disclosure related to costs incurred in R&D activities.