The Ministry of Finance ("MOF") has recently issued a circular to announce that Shanxi Province, Shanghai Municipality, Hainan Province and Chongqing Municipality are selected as pilot regions of the first batch to prepare the general financial reports of the local government and distributed the Operating Guide to the Preparation of the Consolidated General Financial Reports of Local Governments (for Trial Implementation) (the "Guide") at the same time which has taken effect immediately from the issue date.
The Guide provides that the finance department of the government at or above the county level shall be in charge of preparing the consolidated general financial report for the local government. Subjects with their financial reports consolidated include the local government and lower-level governments at its jurisdiction. The consolidated general financial report of the local government shall comprise financial statements, an analysis of government finance and economy, and particulars of fiscal and financial management. Also, the Guide expressly states that the general financial statements of the local government, after consolidating general financial statements of this local government and lower-level governments under its jurisdiction, may be prepared under the offset method. In other words, when the general financial statements of all levels of governments under the local government are consolidated, the respective debited amount for some matters, including "economic affairs or items between different government finance", shall be offset by the corresponding credited amount.