Operational Due Diligence in China

Due diligence is perhaps one of the most important concepts that any investor in China needs to consider. Whether setting up for the first time, or taking a look at internal practices after years of doing business on the mainland, it is important to stay compliant with China's evolving regulations. This means making sure all documentation is current and accurate, all financials are properly reported and employee issue and other assets have been properly accounted for.

Foreign enterprises based in China often lack reliable operational information and the method of booking transactions by Chinese employees may not live up to the expectations of the parent company.

Reasons can be the occasionally unique aspects of the business environment in China, which can often be administratively easier to deal with if made less transparent. That does not necessarily mean out and out fraud, however it can lead to a break down in transparency of business transactions that can reduce strength in management accounting and in turn lead to tax exposures or theft. The likelihood of being disappointed by the performance of local accounting and administrative staff can be reduced by conducting operational due diligence.

To read the full version of this article, please purchase the March 2010 issue of China Briefing, which can be found in the Asia Briefing Bookstore. Companies requiring assistance may contact any Dezan Shira & Associates' nine national offices at china@dezshira.com for advice or visit www.dezshira.com.