Recently, the General Office of the Ministry of Finance ("MOF") has drafted the Interpretations of Accounting Standards for Enterprises No. 9-No.12 (Draft for Comment) to solicit comments from certain entities before February 15, 2017.
In particular, the Interpretations of Accounting Standards for Enterprises No. 9 — Accounting Treatment for Relevant Investment Losses under the Equity Method (Draft for Comment) (the "Draft for Comment") mainly involves the Accounting Standards for Enterprises No. 2 — Long-term Equity Investment. The Draft for Comment explicitly states that where an investing party, under the equity method, recognizes the net loss incurred by the invested entity which it shall bear, offsetting relevant long-term equity investment to zero and resulting in unrecognized investment loss, the investing party shall deal with the accounting treatment in a sequence contrary to that relevant investment losses are recognized or recorded, when the invested entity realizes net profits, other comprehensive income and any other change to the ownership interests (excluding the profit distribution by the invested entity) in the future period. In addition, the Draft for Comment states that relevant business from January 1, 2017 to the date when these interpretations are released shall be retroactively adjusted.