Accounting Standards for Enterprises No. 38 – Initial Implementation of Accounting Standards for Enterprises

Cai Kuai [2006] No.3
February 15, 2006
Chapter I General Provisions

Article 1

According to the Accounting Standards for Enterprises – Basic Standards, this Standards is formulated in order to regulate the recognition
and measurement of accounting elements, as well as the presentation of financial statements governed by the Initial Implementation
of Accounting Standards for Enterprises, when the Accounting Standards for Enterprises is initially carried out.

Article 2

The phrase “initially implementing accounting standards for enterprises” means that the system of accounting standards for enterprises
is first carried out, consisting of the basic standards, specific standards and guidelines on the application of accounting standards.

Article 3

The Accounting Standards for Enterprises No. 28 – Changes in Accounting Policies and Estimates? and Corrections of Errors shall apply
to the alteration of accounting policies occurring after initially carrying out accounting standards for enterprises.

Chapter II Recognition and Measurement

Article 4

On the date of initial implementation, according to the Accounting Standards for Enterprises, an enterprise shall make classification,
recognition and measurement on all assets, liabilities and the owner’s equities again, as well as shall make a balance sheet for
the initial period.

As making a balance sheet for the initial period, the enterprise shall make no retroactive modulation to any item except for those
to which retroactive modulations shall be made according to Articles 5 through 19 of this Standards.

Article 5

A long-term equity investment on the date of initial implementation shall be respectively conducted according to the circumstances
as follows:

(1)

In accordance with the Accounting Standards for Enterprises No. 20 – Business Combination, if a long-term equity investment is generated
from a business combination under common control, the unamortized equity investment difference shall be entirely sterilized, the
retained earnings shall be modulated, and the book balance of the long-term equity investment after the sterilization of the equity
investment difference shall be considered as the cost recognition on the date of initial implementation.

(2)

For any other long-term equity investment calculated by equity method except that mentioned in Item (1), in case there is any equity
investment difference on the credit side, it shall sterilize the credit balance, the retained earnings shall be modulated, and the
book balance of the long-term equity investment after the sterilization on the credit side shall be considered as the cost recognition
on the date of initial implementation. in case there is any equity investment difference on the debit side, the book value of the
long-term equity investment shall be considered as the cost recognition on the date of initial implementation.

Article 6

In case any conclusive evidence indicates that an investment real estate may be measured at fair value, it may be measured at fair
value on the date of initial implementation and the retained earnings shall be modulated based on the difference between its book
value and its fair value.

Article 7

On the date of initial implementation, for the discard expenses which meet the conditions for the recognition of expected liabilities
but have not been charged to the asset costs prior to this date, the asset costs shall be increased and the related liabilities shall
be recognized. Simultaneously, the retained earnings shall be modulated based on the depreciation (depletion) drawn complementarily.

Article 8

As to a plan on terminating the labor relationship with an employee which is already existing on the date of initial implementation,
in case it meets the conditions described in the Accounting Standards for Enterprises No. 9 – Wages and Salaries of Employees for
the recognition of expected liabilities, the liability resulting from the compensation made for the cancellation of the labor relationship
with the employee shall be recognized as well as the retained earnings shall be modulated.

Article 9

As to an investment formed in the operation of the enterprise annuities fund, it shall be measured at a fair value on the date of
initial implementation and the retained earnings shall be modulated based on the difference between its book amount and the fair
value.

Article 10

As to a share-based payment of which the vesting date is on or after the date of initial implementation, upon the provisions of the
Accounting Standards for Enterprises No. 11 – Share-based Payment, the retained earnings shall, in accordance with the fair value
of the equity instrument, or service provided by any other party or liability assumed by any other party which is calculated and
determined based on the equity instrument, be modulated at the amount of cost incurred during the vesting period before the date
of initial implementation, and the owner’s equities or liabilities shall be increased accordingly.

Any retroactive modulation may be not made to any share-based payment made for any exercisable right before the date of initial implementation.

Article 11

On the date of initial implementation, according to the Accounting Standards for Enterprises No. 13 – Contingencies, an enterprise
shall recognize those restructuring obligations meeting the conditions for the recognition of expected liabilities as liabilities,
and shall modulate the retained earnings.

Article 12

On the date of initial implementation, in accordance with the provisions of the Accounting Standards for Enterprises No. 18 – Income
Tax, an enterprise shall make a retroactive modulation to the effect of the temporary difference between the carrying amount of an
asset or liability and its tax base on income tax, and shall modulate the retained earnings based on the affected amount.

Article 13

Other than the items as follows, any retroactive modulation may not be made to the business combinations occurring before the date
of initial implementation:

(1)

As to a business combination under common control as prescribed in the Accounting Standards for Enterprises No. 20 – Business Combination,
the amortized value of the originally recognized business reputation shall be entirely sterilized and the retained earnings shall
be modulated.

As to a business combination not under common control as described in this Standards, the amortized value of the business reputation
on the date of initial implementation shall be recognized as cost, and it shall not be amortized any more.

(2)

As to the business combination occurring before the date of initial implementation, in case it is stipulated in the combination contract
or agreement that the combination cost should be modulated in accordance with the occurrence of future events, and the future events
expected on the date of initial implementation are likely to occur and their effects on the combination cost can be measured reliably,
the carrying amount of the already recognized business reputation shall be modulated based on the affected amount.

(3)

According to the Accounting Standards for Enterprises No. 8 – Asset Impairment, an enterprise shall have an impairment test for the
business reputation on the date of initial implementation, if impaired, it shall be recognized with the amount after the impairment
provision is made as well as the retained earnings shall be modulated.

Article 14

On the date of initial implementation, an enterprise shall divide the financial assets (excluding the investments under the Accounting
Standards for Enterprises No. 2 – Long-term Equity Investments) into financial assets, held-to-maturity investments, loans, receivables
and financial assets available for sale measured at their fair value and of which the alterations charged to the profits and losses
in the current period.

(1)

As to those classified as financial assets measured at their fair value and of which the alterations charged to the profits and losses
in the current period or available for sale, they shall be measured at their fair value on the initial date of implementation, as
well as the retained earnings shall be modulated based on the difference between the carrying amount and the fair value.

(2)

As to those classified as held-to-maturity investments, loans and receivables, they shall, as of the date of initial implementation,
be measured at their amortized cost in the subsequent accounting periods employing the actual interest rate method.

Article 15

As to a financial liability which on the date of first implementation is designated to be measured at its fair value and of which
the alterations are charged to the profits and losses in the current period, it shall be measured at its fair value on the date of
initial implementation as well as the retained earnings shall be modulated based on its carrying amount and fair value.

Article 16

As to a derivative financial instrument (excluding hedging instruments) which has not been recognized in the balance sheet or which
has been measured at its cost, it shall be measured at its fair value on the date of initial implementation and the retained earnings
shall be modulated.

Article 17

As to an embedded financial instrument which shall be separated from the mixed instrument according to the Accounting Standards for
Enterprises No. 22 – Recognition and Measurement of Financial Instruments, on the date of initial implementation, it shall be separated
from the mixed instrument and shall be conducted respectively, however, unless it is difficult to make a reasonable determination
on the fair value of the embedded derivative financial instrument.

As to a non-derivative financial instrument with liability and equity components which is issued by an enterprise, on the date of
initial implementation, the liability component shall be separated from equity component according to the Accounting Standards for
Enterprises No. 37 – Presentation of Financial Instruments, unless it is difficult to make a reasonable determination on the fair
value of the liability component.

Article 18

On the date of initial implementation, as to the hedges which do not meet the conditions for employing the hedge accounting methods
described in the Accounting Standards for Enterprises No. 24 – Hedging, the implementation of the original hedge accounting methods
shall be brought to an end and shall be conducted according to the Accounting Standards for Enterprises No. 24 – Hedging.

Article 19

On the date of initial implementation, a cession enterprise of reinsurance businesses shall recognize the related provisions which
should be allocated back to the reinsurance acceptors as assets according to the Accounting Standards for Enterprises No. 26 – Reinsurance
Contracts as well as modulate the carrying amount of each provision.

Chapter III Presentation

Article 20

During the period of preparation of the first annual financial statements after the date of initial implementation (referred to as
the first annual financial statements hereinafter)according to the Accounting Standards for Enterprises, an enterprise shall make
a balance sheet, profit statement, cash flow statement, statement on alternations of the owner’s equities and the notes in the light
of the Accounting Standards for Enterprises No. 30 – Presentation of Financial Statements and the Accounting Standards for Enterprises
No. 31 – Cash Flow Statements.

As to the enterprise which provides consolidated financial statements to outsiders, it shall be governed by the provisions in the
Accounting Standards for Enterprises No. 33 – Consolidated Financial Statements.

As to the enterprise which provides interim financial reports during the period covered by the first annual financial statements,
it shall be governed by the provisions in the Accounting Standards for Enterprises No. 32 – Interim Financial Reports.

An enterprise shall throw daylight on the alternations in the amount of the items of the financial statements upon initial implementation
of the Accounting Standards for Enterprises in its notes.

Article 21

The first annual financial statements shall at least consist of comparative information of the previous year presented according
to the Accounting Standards for Enterprises. In case the presentation of the items of financial statements alters, the comparative
figures of the previous year shall be modulated as required by the Accounting Standards for Enterprises concerning the presentation,
unless it is impractical.

As to a subsidiary company which was not included into the scope of consolidation, but should have been included into therein according
to the Accounting Standards for Enterprises No. 33 – Consolidated Financial Statements, the enterprise shall list it under the scope
of consolidation for the comparative consolidated financial statements of the previous year. As to a subsidiary company which was
included into the scope of consolidation, but should have not been included into therein according to this Standards, the enterprise
shall not list the subsidiary company under the scope of consolidation for the comparative consolidated financial statements of the
previous year. The minority shareholders’ interests presented in the comparative financial statements of the previous year shall
be listed under the category of the owner’s equities according to these Standards.

As to an enterprise that shall list the earnings per share, it shall calculate and list the earnings per share of the previous year
in the comparative financial statements according to the Accounting Standards for Enterprises No. 34 – Earnings Per Share.

As to an enterprise that shall publish the segment information, it shall publish the segment information of the previous year in the
comparative financial statements according to the Accounting Standards for Enterprises No. 35 – Segment Reports.