Introduction
In 2026, the Ministry of Finance of China revised "Accounting Standard for Enterprises No. 30 - Presentation of Financial Statements," significantly reviewing the presentation of corporate income statements. This revision aims to advance the ongoing convergence with International Financial Reporting Standards (IFRS), clarify the profit structure of enterprises, and enhance the comparability and transparency of financial information.
Regarding this revision, it is sometimes explained that the categories of "non-operating income" and "non-operating expenses" will be abolished. However, it is important to note that it does not mean that all accounting categories will be abolished immediately in 2026; rather, the classification and presentation methods of profits and losses in the income statement will be changed.
In the new concept of financial statements, the current period's profits and losses will be classified into five categories: "operating activities," "investing activities," "financing activities," "income tax expenses," and "discontinued operations," establishing profit indicators such as "operating profit," "operating and investment profit," and "profit from continuing operations." This will allow for a clearer understanding of how much profit a company generates from its core business and how investment activities and financing affect profits.
This change is also important when Japanese companies review the financial statements of their Chinese subsidiaries or manage the accounting and tax affairs of local Chinese entities.
1. Overview of the 2026 Revision of Chinese Accounting Standards
The subject of this revision is "Accounting Standard for Enterprises No. 30 - Presentation of Financial Statements." The Ministry of Finance of China officially announced the revised version in July 2026.
This revision does not fundamentally change the recognition and measurement methods in accounting but primarily aims to improve the "presentation" and "disclosure" of information in financial statements. The Ministry of Finance has also explained that this revision focuses on optimizing the presentation and disclosure of financial statements and does not change the recognition and measurement requirements in accounting.
In the background, there was a problem in the traditional income statement where profits and losses arising from investment activities and financing activities were included in operating profit, making it difficult to intuitively grasp the revenue-generating ability of a company's core business from the financial statements.
This revision emphasizes resolving such issues and displaying the sources of a company's profits in a more structured manner.
Additionally, considering that International Financial Reporting Standards (IFRS) No. 18 "Presentation and Disclosure in Financial Statements" will be applied from January 1, 2027, revisions to Chinese accounting standards have also been made to enhance consistency with international standards.
2. How should we understand the "elimination of non-operating income and non-operating expenses"?
A point to pay particular attention to in understanding this revision is the expression that "non-operating income and non-operating expenses will be eliminated."
Under the previous Chinese accounting standards, the income statement included items such as "operating profit," "total profit," and "net profit," and "non-operating income" and "non-operating expenses" were treated as important items in calculating total profit.
For example, there was a concept of processing profits and losses that are not directly related to a company's daily business activities, such as charitable donations, losses due to natural disasters, and impairment or disposal losses of non-current assets, as "non-operating income" or "non-operating expenses."
However, this revision has changed the approach from simply dividing profits and losses into "operating" and "non-operating" to organizing them into five categories: "management," "investment," "finance," "income tax expenses," and "discontinued operations."
Therefore, in practice, it will be important to classify and display profits and losses that were previously grouped into a single category of "non-operating" according to the nature of the transaction, such as management activities, investment activities, and financing activities.
In other words, this revision is not simply an "elimination of non-operating items," but rather,a revision that reconsiders the very approach to how profits and losses are classified and presented in the income statement.This understanding is appropriate.
3. The five categories of the new income statement
The new Corporate Accounting Standard No. 30 introduces the idea of classifying a company's current profits and losses into five categories: "management activities," "investment activities," "finance activities," "income tax expenses," and "discontinued operations."
"Management activities" is a category centered around a company's main business activities. Revenues and expenses arising from the sale of goods or provision of services by the company are fundamentally classified here.
"Investment activities" is a category for classifying revenues and losses arising from investments.
"Finance activities" is a category for classifying profits and losses related to financing activities such as borrowing.
"Income tax expenses" separates and displays costs related to income taxes such as corporate income tax.
"Discontinued operations" targets profits and losses related to businesses that the company has already disposed of or holds for sale, which need to be distinguished from normal ongoing business activities.
Such classification allows users of financial statements to more easily understand whether a company's profits are derived from its core business, investments, or financing activities.
4. The meaning of "operating profit" also becomes important.
A particularly important aspect of this revision is positioning "operating profit" as a clearer management indicator.
The new income statement will include total items such as "operating profit," "operating and investment profit," and "profit from continuing operations."
This will make it easier to clearly grasp the profits derived from a company's core business compared to before.
For example, if a certain Chinese subsidiary is generating little profit from its main business while earning significant investment income from its financial assets, it can be difficult to understand where the overall profit of the company is coming from based solely on the traditional income statement.
The new presentation method allows for a clearer distinction between operating activities and investment activities, enabling the analysis of the profitability of the main business and the income from investments.
When a Japanese parent company evaluates the performance of its Chinese subsidiary, it becomes important to check not only "what the net profit is" but also "how much profit is being generated from operating activities."
5. Special considerations are needed for companies engaged in specific core businesses.
It is also important to note that this revision does not mechanically apply the same classification method to all companies.
For companies engaged in specific core business activities, even if the profit and loss would typically be classified under investment or finance categories for general companies, it may be necessary to classify them under the management category based on their core business activities.
This is a mechanism to reflect the actual business model of the company in its financial statements.
For example, in companies such as financial institutions or investment-related firms where investment and fundraising are the main business activities, classifying them as "investment" or "finance" based on the same standards as general companies may obscure the true business reality of the company in the financial statements.
Therefore, it is important to classify profits and losses based on the company's main business activities.
6. Disclosure of management performance indicators will also be strengthened.
This revision introduces new disclosure requirements not only for the structure of the income statement but also for the performance indicators used by management.
If a company uses unique profit indicators in formal public documents other than financial statements that are not required by accounting standards, and thereby provides users with the management's perspective on the overall financial performance of the company, those indicators must be disclosed in the notes as "management performance indicators."
In such cases, explanations regarding the content and calculation methods of the indicators will also be required.
This aims to ensure that users of financial statements can understand the meaning and calculation methods of indicators such as "adjusted operating profit" and "adjusted profit" that the company has created independently.
When the Japanese parent company reviews the monthly and quarterly reports of the Chinese subsidiary, it is also necessary to be careful not to confuse the unique KPIs and profit indicators created by the Chinese subsidiary with the profit indicators under accounting standards.
7. Impact on Japanese companies' Chinese subsidiaries.
This revision may also affect local subsidiaries established by Japanese companies in China.
In particular, when the Japanese parent company incorporates the financial statements of the Chinese subsidiary into its consolidated financial statements, changes in the classification and presentation of profit and loss items may impact the preparation of consolidated packages and management accounting materials.
Additionally, the accounting software and ERP systems used by the local Chinese subsidiary may require account mapping to accommodate the new profit and loss classifications.
For example, transactions that were previously managed collectively as "non-operating income" and "non-operating expenses" will now need to be categorized into management, investment, finance, etc., based on the nature of the transactions.
Therefore, it is advisable to confirm the correspondence between account items and profit and loss classifications early on between the accounting department of the Japanese headquarters and the finance and accounting personnel of the local Chinese subsidiary.
8. Consider the impact on taxation separately from accounting standards.
An important point to note in this revision is thatchanges in accounting presentation should not be equated with the calculation methods for corporate income tax.
The revision of Corporate Accounting Standard No. 30 primarily concerns the presentation and disclosure of financial statements, and just because the classification of profits and losses on the financial statements has changed, it does not automatically change the tax relationship under China's Corporate Income Tax Law for those transactions.
For example, even if a certain revenue is classified as "operating activities" in accounting, that alone does not change the method of calculating taxable income for tax purposes.
Conversely, even if the presentation method in accounting changes, adjustments may still be necessary for tax filings based on Chinese tax law.
When Japanese companies manage the taxes of their Chinese subsidiaries, it is important to distinguish between financial reporting based on accounting standards and tax filings based on China's Corporate Income Tax Law.
9. Application Timing and What Companies Should Prepare
The new Corporate Accounting Standard No. 30 will not be applied uniformly by all companies in 2026.
According to the announcement from the Ministry of Finance, companies that are listed both domestically and internationally, as well as overseas listed companies that prepare financial statements based on IFRS or Chinese Corporate Accounting Standards, will apply it from January 1, 2027.
For other domestically listed companies in China, it will apply from January 1, 2029, and for non-listed companies applying Corporate Accounting Standards, it will apply from January 1, 2030. Additionally, early application is allowed for companies that meet certain conditions.
Therefore, for Japanese companies' Chinese subsidiaries, it is necessary to first confirm which application category they fall under.
On that basis, it is advisable to check whether the accounting system, account items, financial reporting formats, consolidation packages, and management accounting materials can accommodate the new profit and loss classification.
In particular, for companies that use different account item systems for monthly reports to the parent company and for statutory financial statements in China, it is important to organize the mapping of both in advance.
10. Points Japanese Companies Should Confirm Now
If a Japanese company has a local subsidiary in China, it is effective to first identify the transactions recorded as "non-operating income" and "non-operating expenses" in the income statement of the Chinese subsidiary in preparation for this revision.
Then, it is necessary to confirm which category each transaction may fall into, such as operating activities, investing activities, or financing activities.
Next, it is necessary to check whether the accounting system or ERP of the Chinese subsidiary can set up account items and reporting items that correspond to the new classification.
Furthermore, it is advisable to check whether there will be changes in the mapping from the traditional Chinese local account items to the consolidated items under Japanese standards or IFRS for consolidated reporting to the Japanese parent company.
It is also important for accounting and tax personnel to collaborate and confirm whether changes in accounting classifications will affect tax filings or tax adjustments.
This revision is not merely a change in the layout of financial statements, but an important institutional change to more clearly display the profit structure of Chinese companies. By preparing early, it is possible to minimize the impact on system modifications and consolidated reporting.
In conclusion
The revised Chinese "Corporate Accounting Standard No. 30 - Financial Statement Presentation" in 2026 is an important revision that significantly reconsiders the structure of the income statement of Chinese companies.
What is particularly important is to shift from understanding the profit structure of companies solely through the traditional classifications of "operating profit," "non-operating income," and "non-operating expenses" to a clearer display of the sources of profit through five categories: management, investment, finance, income tax expenses, and discontinued operations.
It is not appropriate to simply understand that "the categories of non-operating income and non-operating expenses will be completely abolished in 2026." The focus of this formal revision is on changes to the classification, presentation, and disclosure methods of profits and losses in the income statement, and it is necessary to respond to the accounting category system in light of future related guidelines and the organization of the accounting category system. The Ministry of Finance has also indicated its policy to advance the revision of the accounting category system in preparation for the implementation of the new reporting standards.
For Japanese companies, it is important to confirm the start date of application and to review existing account categories and reporting systems as soon as possible, as this may affect financial reporting, consolidated financial statements, accounting systems, management accounting, and tax management of their Chinese subsidiaries.
To properly manage the accounting and tax of Chinese subsidiaries, it is desirable to comprehensively confirm not only China's accounting standards but also the relationship with the consolidated reporting of the Japanese parent company and Chinese corporate income tax.