Our past experiences in handling EAI for clients have identified many problems in the conduct which are summarized in below :
- Accounting staff are not familiar with the laws and regulations in both territories.
- During custom declarations, there are many practical issues to report on details such as material descriptions, quantities, unit prices, etc.
- In the PRC accounting, only expenditure with suppliers’ VAT invoices is recordable in books (“B”). However, there are always expenditure paid without suppliers’ VAT invoices and so have not been recorded in B but in C.
- There could be income or expenditure received or paid by the Hong Kong corporation which are not recorded in the books of the FIE (not in B but in C).
- The accounting policies for fixed assets with regard to acquisitions, financing and depreciation adopted in the two territories have generated accumulated differences in the long term.
- The unit prices, quantities, codes, custom supervision or not, domestic or overseas purchases, export or domestic sales, etc. have created many problems in the accounting for inventories.
- The gap in transfer pricing has left out certain portion of profits not reported and taxed in either territory.
- The problems of cash remittances are serious. If to include the accumulated differences in exchanges, these all give rise to big gaps in the ABC accounts.
- The most serious problem of all is – because of the reconciliation of ABC accounts has not been done for a long period, the differences arose from whatever reasons are hard to be identified. As well, the ultimate net difference could not reasonably be treated in accounting.