Q&A

China has enacted a similar version of Sarbanes-Oxley Act of 2002 in 2008, namely the Basic Standard for Enterprise Internal Control (Caikuai No.7). The scope of the Basic Standard applies to:

• Companies that are concurrently listed in the domestic and overseas markets from January 1, 2011 onwards;
• Companies listed on the main board of the Shanghai and Shenzhen Stock Exchange from January 1, 2012;
• Companies listed on the small-and-medium-sized enterprise board and the Growth Enterprise Market “when appropriate”; and
• Non-listed companies are encouraged to adopt these guidelines.
• To implement the Basic Standard, supporting guidelines have been issued in 2010 (Caikuai No. 11). These guidelines include:
• Application Guidelines
• Evaluation Guidelines
• Audit Guidelines

Listed, non-listed large and medium-sized enterprises that are governed by the Basic Standards and the supporting guidelines, have to conduct a self-evaluation and disclose an annual self-evaluation report on the effectiveness of their internal control, and engagement with accounting firms to audit and issuance of auditor’s reports on effectiveness of internal control in financial reporting. These guidelines are generally in line with international materials on internal control.