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China Petroleum and Chemical Corporation Essay

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The net profit figure of RMB 19,011 reported under PRC GAAP was increased to RMB 21,593 under IFRS. The increase of RMB 2,582 under IFRS was due to the following reasons: Dep. and disposal of oil and gas properties RMB3,044

Acquisition of subsidiaries 443 Capitalization of general borrowing costs 389 Gain from issuance of shares by subsidiary 136
Gain from debt restructuring 82
Revaluation of land use rights 18 4,112
Unrecognized losses of subsidiaries (182)
Pre-operating expenditures (169)
Effect on taxation (1,179)(1,530)
2,582

The net profit figure of RMB 21,593 reported under IFRS was increased to RMB 25,577 under U.

S. GAAP. The increase of RMB 3,984 under U.S. GAAP was due to the following reasons: Dep. of revalued PPE RMB 3,998

Disposal of PPE 1,316
Capitalized interest on invest.in associates 141
Reversal of deficits on revaluation of PPE 86
Foreign exchange gains and losses76
Reversal of impairment of long-lived assets 47
Exchange of assets23
Capitalization of PPE12 5,699
Deferred tax effect of U.S. GAAP adjustments (1,715) 3,984 2.The differences for CPCC between PRC GAAP and IFRS, and between IFRS and U.

S. GAAP are given in the case. As mentioned in the case, treatments of the following items under PRC GAAP and IFRS are different:

Depreciation and disposal of oil and gas properties
Capitalization of general borrowing costs
Acquisition of subsidiaries
Gains from issuance of shares by a subsidiary
Gains from debt restructuring
Revaluation of land use rights
Unrecognized losses of subsidiaries
Pre-operating expenditures
Impairment loses on long-lived assets
Government grants (Refer pp.5-72 – 5-75 in the textbook)
Treatments of depreciation and disposal of oil and gas properties seem to have a significant impact on reported profit. As mentioned in the case, treatments of the following items under IFRS and U.S. GAAP are different:

Foreign exchange gains and losses
Capitalization and revaluation of property, plant and equipment
Exchange of assets
Impairment of long-lived assets
Capitalization of interest on investment in associates
Goodwill amortization
Companies included in consolidation
Related party transactions (Refer pp.5-77 – 5-82)

Treatments of depreciation of revalued property, plant and equipment, and disposal of property, plant and equipmentseem to have a significant impact on reported profit 3.U.K. readers of the financial statements may not find them very useful, as the information is not reconciled to the U.K. GAAP. There are differences between U.K. GAAP and IFRS, and between U.K. GAAP and U.S. GAAP. With the adoption of IFRS in the EU, this may not be a major problem anymore. However, UK companies use IFRS as adopted by the EU which in some cases differs from the IFRS issued by the IASB. 4.U.S. readers should find the information useful. However, it would be better for them if the information was reconciled directly from PRC GAAP to U.S. GAAP.

5.When a company is listed on a foreign stock exchange, it is always useful to explain the differences, if any, between accounting standards used in preparing financial statements, and those that are stipulated by the listing requirements. The need for such explanation is reduced if the two sets of standards are comparable. However, differences can still exist due to different interpretations of the requirements. Therefore, the approach taken by CPCC can be recommended to other companies.

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