New Accounting Standards Highlight Importance of R&D Expenses in China

On June 15th, 2018, the Ministry of Finance issued a notice on the revision and issuance of the general enterprise financial statement format for the year 2018 (Cai Kuai [2018] No. 15), revising the format of the financial statements for general enterprises. One of the revisions is that in the new format of the income statement, research and development expenses are no longer disclosed as a secondary item under management expenses in the notes to the financial statements, but rather as a separate item in the income statement to reflect the cost of research and development incurred by the enterprise. At the same time, listed companies will no longer disclose projects related to research and development as detailed items under management expenses in the notes to the financial statements, but will disclose the various detailed items that make up the amount of research and development expenses in the income statement separately. It is evident from this that the new revised financial statement format places research and development expenses in a more important position for reporting, increases the disclosure requirements of research and development expenses in the financial statements of enterprises, and standardizes the quality of information disclosure on costs related to research and development activities by enterprises.