The world’s leading companies are going digital and in China, they demand accounting partners who also leverage digital and the internet. Here’s a step-by-step guide to upgrading your China practice.
This article applies to accounting practice serving small foreign businesses in China, including those who has an established headquarter outside China or those founded in China by an expatriate entrepreneur or business owner.
It also applies to accountants engaging with small Chinese companies who are serious about their financials and controlling, although we believe currently this target type only accounts for a small percentage of the Chinese small business sector.
A shifting market, innovative cloud technology and growing expectations from business customers characterize the global trend faced by modern accounting service practices. The industry serving small and startup business is undergoing a transformation where compliance work is increasingly commoditized and value-added business advisory becomes the main stream of revenue.
In China, over the years the complicated compliance procedures have been a headache and cost burden for small business, but a source of profitable revenue for accounting firms. However, radical reforms in tax systems have been setting off, witnessed by recent development of BT replaced by VAT and electronic Fapiao. As a result, after 3-5 years compliance will be substantially simplified, and works like source documents collection, compiling and archiving, book keeping and tax-filing will be reduced or completely eliminated which would alleviate the burdens for small business but take the jobs and revenue away from accounting service.
Accountants can interpret the shifting landscape either as opportunities or threats depending on their paradigm of looking at these trends. When compliance is losing its value, advisory services will start to thrive. Accounting professionals who are willing to switch to true value-added jobs will take the opportunity to lift their game and bring their business to the next level, whereas those who move slowly to upgrade their offerings would struggle to remain in business.
Cloud accounting software is an enabler for the business advisory service. On one hand, it frees accountants, as many labor and time-intensive tasks can now be automated. On the other, it creates conditions for accountants to have access to real time data of their clients every single day, rather than reviewing it once a month or a year. They can instantly find areas of deviation and potential risks in need of attention, and they can also help predict what is going to happen with clients’ business.
In fact there’s more to it than just new software. To successfully move into the consulting services market you’ll have to change the way you work and communicate with your clients. You will also develop and cultivate a staff team with much upgraded skillset, and probably more importantly, adapted mindset. It is clear that you can’t accomplish the organizational change of your practice overnight, and adopting an incremental approach is a wise way to ensure the smooth transition.
Step 1. Automating the accounting data entry.
Cloud accounting software revolutionizes the design of features and usability of functionalities, which enables users who are from non-accounting background to input data into intuitive transaction forms. However, accountants, who are naturally conservative and resisting change, used to perform the book keeping either in Excel or directly in general ledger. Innovative data-entry productivity features of cloud accounting software enables accountants to fill in or upload source transaction data, such as bank statements, fapiao or expenses, into Excel file, and import into a ‘data dock’ where it will be validated, sorted out and then filled into the transaction forms as well as general ledger.
Instant efficiency gains can be achieved as previously labor-intensive and time-consuming tasks are automated. Accountants are not resisting as they can continue to play with their deeply-loved tool, spreadsheets, to compile the data. Clients are not given shocks of big change, as they continue to work with accountants in the same way for data submission and communication as before. The Cloud accounting software temporarily remain transparent at the background.
Step 2. Fapiao, and VAT
When doing business in China, the fapiao and VAT system can be confusing. All the business feel compelled to know whether the fapiao from suppliers have been received and with the right number, as well as whether the fapiao for clients have been issued with the correct amount.
|Areas of work||Procedures||Controlling Points|
|– Client collects fapiao from supplier
– Post to accountant for book keeping
|– Whether input fapiao received for all purchases
– Check if fapiao received with the correct amount against purchase bill
|– Client performs by herself or notify accountant for sales output fapiao printing
– Client posts output fapiao to accountant for book keeping
|– Whether fapiao is timely printed and issued for cash collection
– Whether output fapiao is accurately issued against sales invoices
|– Collect and compile all input fapiao and output fapiao for book keeping
– Timely calculation of TAX payable
|– Balance the input and output TAX each month for optimized TAX planning in an timely manner|
Fapiao (*You can follow our wechat account and get acess to the last two posts on Fapiao Management) is something that has both compliance and management accounting significance. The above table shows that fapiao and TAX involves a chain of works spanning across client and accountant, signaling that it entails both parties collaborating seamlessly to ensure accuracy.
Through the cloud accounting software, accountant and client are able to have the real time access to one set of fapao and VAT information, making it easy for them to share documents status and to cooperate to prevent small issues from growing out of hand.
All the fapiao information is linked to and thus can be traced back to the corresponding business transaction. Cloud accounting software also enables data drill down from macro to micro level, if there are problems arising. For example, from overall VAT tax payable, you can drill down to the components of specific input and output fapiao, and corresponding purchase and sales transaction.
By involving clients into fapiao and VAT module, accountant walks one natural step forward to engage clients in cloud accounting software and instantly add value by helping them to keep TAX and fapiao under control.
* In the second part of the article, we will talk about how to extend your business beyond compliance and progressively into higher value services.