Core Viewpoint - The China Securities Regulatory Commission (CSRC) released the 2024 annual financial report accounting supervision report, indicating that while listed companies generally comply with accounting standards and financial disclosure rules, there are still significant issues in areas such as revenue recognition, long-term equity investments, financial instruments, asset impairment, and non-recurring gains and losses [1][2][7]. Revenue-Related Issues - Companies improperly adopted the time period method for revenue and cost recognition, leading to unreasonable income and cost confirmations [7][8]. - Incorrect accounting for sales revenue under pricing models, treating price fluctuations as variable consideration instead of embedded derivatives [9]. - Mismanagement of sales rebates, where companies recognized full revenue upon delivery without appropriately accounting for future rebates [10]. - Inadequate handling of contract fulfillment costs, failing to recognize costs as assets when they are directly related to fulfilling contracts [11]. Long-Term Equity Investments and Business Combinations Issues - Companies incorrectly judged the scope of consolidated financial statements, failing to recognize control over subsidiaries [12][13]. - Misapplication of goodwill recognition in non-similar control business combinations, treating step acquisitions as separate transactions [16][17]. - Inappropriate handling of contingent consideration in business combinations, failing to recognize it as part of the acquisition cost [18][19]. - Errors in accounting for minority shareholder performance commitments, leading to incorrect classification of contingent consideration [20][21]. Financial Instruments Recognition and Measurement Issues - Inadequate provision for expected credit losses, with companies misclassifying receivables with different risk characteristics [25][26]. - Incorrect distinction between financial liabilities and equity instruments, leading to misclassification of obligations [27]. - Failure to timely recognize financial liabilities related to the purchase of minority interests [28]. - Improper handling of price adjustment clauses in inventory purchases, failing to account for embedded derivatives [29][30]. Asset Impairment Issues - Companies inadequately recognized inventory impairment, failing to assess the recoverable amount based on estimated selling prices [31]. - Misclassification of prepaid accounts and other receivables, leading to inappropriate impairment provisions [32][33]. - Errors in measuring the recoverable amount of assets, using inappropriate valuation methods [34]. - Inadequate provision for impairment of construction in progress, failing to recognize impairment indicators [35]. Other Recognition and Measurement Issues - Companies improperly accounted for customized product-related R&D expenses, failing to determine whether they should be capitalized or treated as contract fulfillment costs [36][37]. - Incorrect treatment of fixed asset repair expenses, misclassifying them as operating expenses instead of capitalizing them [38]. - Errors in recognizing and measuring construction in progress, including mismanagement of contractual obligations and related costs [39]. - Inappropriate handling of penalties for lease termination, misclassifying them as operating expenses rather than adjusting lease liabilities [40][41].

Core Insights - The China Securities Regulatory Commission (CSRC) released the "2024 Annual Financial Report Accounting Supervision Report," indicating that 5,413 listed companies in the A-share market disclosed their 2024 annual financial reports by April 30, 2025 [1] - Among the companies that disclosed their reports, 192 received non-standard audit opinions, including 56 with unqualified opinions containing emphasis of matter paragraphs and 35 with unqualified opinions containing going concern paragraphs [1] - The report highlights that while companies generally adhere to accounting standards and disclosure rules, there are still issues in areas such as revenue recognition, long-term equity investments, financial instruments, asset impairment, and non-recurring gains and losses [1] Regulatory Actions - The CSRC plans to continue monitoring accounting information disclosure issues identified in the reports and will enforce regulatory actions as per established guidelines [2] - There will be an emphasis on enhancing the regulatory framework for financial report disclosures and improving regulatory effectiveness [2] - The CSRC urges listed companies and intermediary institutions to address the issues raised in the accounting supervision report promptly and to improve their understanding and execution of accounting standards and disclosure rules [2]