The Accounting Law, with the final amend in 2000, addresses all enterprises and businesses, including those not possessed or controlled by the condition. It outlines the general concepts of accounting and identifies the role of the government and the matters that require accounting procedures. The State Council (a good executive body corresponding to the cabinet) has also issued Financial Accounting and Reporting Guidelines for Enterprises (FARR). These concentrate on bookkeeping, the preparation associated with financial statements, reporting practices, and other financial accounting and reporting matters.

FARR apply to all enterprises other than very small ones that do not raise funds externally. The Ministry of Finance, supervised by the State Council, formulates accounting and auditing standards. Besides accounting and auditing issues, the ministry is responsible for an array of activities affecting the economy. Generally, these activities consist of formulating long-term economic strategies as well as setting the priorities for that allocation of government money. More specifically, the ministry’s responsibilities consist of formulating and enforcing economic, tax, and other finance-related policies;

Preparing the annual state budget and fiscal report,
Managing state revenue and expenditure,
Developing the financial management and tax system.

Accounting and auditing matters fall into the last category.

In 1992 the Ministry of Finance issued Accounting Standards for Business Enterprises (ASBE), a conceptual framework designed to guide the development of new accounting standards that would eventually harmonize domestic practices and harmonize Chinese practices with worldwide practices. The ASBE was a milestone event in China’s move to an industry economy. Before the ASBE, more than Forty different uniform accounting methods were in use, varying throughout industries and types of possession. Although each one of these might individually be labeled as standard, taken together they led to inconsistent practices overall. Therefore, one motive for giving the ASBE was to harmonize domestic accounting practices. Moreover, current practices were incompatible with worldwide practices and unsuited for any market-oriented economy. Harmonizing Chinese accounting to international practices served to remove barriers of communication with foreign investors and helped meet the needs of the economic reforms already under way.