Us Gaap vs. Prc Gaap1

Semiconductor Manufacturing International Corporation

US GAAP vs. PRC GAAPUS GAAP vs. PRC GAAPComparisonComparison

Semiconductor Manufacturing International Corporation

Framework for Financial ReportingFramework for Financial Reporting

• US GAAP­ SFAS,­FASB­Interpretations,­APB­Opinions­and­ARB

­ FASB­Technical­Bulletins,­EITF

­ AICPA­Industry­Audit­and­Accounting­Guides,­AICPA­Statements­of­Position

­ SEC­SAB

­ PCAOB­standards

• PRC GAAP­ Financial­Accounting­and­Reporting­Rules­for­Enterprises­(FARR)­

­ Accounting­Standards­for­Business­Enterprises

­ Accounting­System­for­Business­Enterprises­(ASBE)­

­ Accounting­Systems­for­Various­Industries

­ MOF­Interpretations,­Implementation­Guides

Semiconductor Manufacturing International Corporation

Major Areas of GAAP Differences Major Areas of GAAP Differences

­ Inventories

­ Investment­&­Consolidation

­ Assets­held­for­sales

­ Amortization­of­intangible­assets

­ Land­use­Rights

­ Assets­impairment

­ Pre-operating­Expenses

­ Effects­on­changes­in­foreign­exchange­rates

Semiconductor Manufacturing International Corporation

Major Areas of GAAP DifferencesMajor Areas of GAAP Differences

­ Borrowing­Costs­ Quantifying­Contingencies­ Revenue­Recognition­ Subsidy­income­ Income­Taxes­ Appropriated­Staff­Welfare­and­Bonus­Funds­ Cash­Flow­Statement­Presentation

Semiconductor Manufacturing International Corporation

InventoriesInventories

• US GAAP

­ Inventories­to­be­stated­at­the­lower­of­cost­and­market­value­(­market­is­the­lower­of­replacement­cost­and­NRV­minus­normal­profit­margin).

­ Reversal­of­inventory­write­downs­is­prohibited.

­ Write­down­for­LCM­is­recorded­in­cost­of­goods­sold

• PRC GAAP

­ Inventories­to­be­stated­at­the­lower­of­cost­and­net­realizable­value.­

­ Reversal­of­inventory­write-downs­required­if­certain­criteria­are­met

­ LCM­provision­is­recorded­in­G&­A­expenses

Semiconductor Manufacturing International Corporation

Investment & consolidation Investment & consolidation

• US GAAP­ Consolidation,­equity,­and­cost­methods­applied­based­on­definitions­of­control­and­significant­influence

­ Consolidate­special­purpose­entity­based­on­equity­risk

­ Variable­Interest­Entities­­(VIE)­should­be­consolidated­according­to­FIN­46

• PRC GAAP­ Consolidation­of­controlled­subsidiaries­is­optional­for­some­subsidiaries

Semiconductor Manufacturing International Corporation

Assets held for salesAssets held for sales

• US GAAP

­ long-lived­assets­to­be­disposal­by­sale­shall be classified as held for sale

­ The­valuation­of­the­assets­shall­be­determined­by­the­lower­of­its­carrying­value­or­the­fair­market­value­less­any­cost­to­sell

­ should­not­be­depreciated­any­further

­ Any­gain­or­loss­in­result­of­the­sale­activity­shall­be­included­in­income­from­continuing­operation­before­income­taxes­

• PRC GAAP­ No­requirement

Semiconductor Manufacturing International Corporation

Amortization for Intangible AssetsAmortization for Intangible Assets

• US GAAP­ Amortize­if­the­asset­has­a­finite­life

­ Do­not­amortize­if­the­asset­has­an­indefinite­life,­but­test­regularly­for­impairment

• PRC GAAP­ Amortize­over­the­shorter­of­the­estimated­useful­life­and­the­contractual­or­legal­life

­ If­no­contractual­or­legal­life,­amortize­over­the­estimated­useful­life,­but­not­more­than­10­years.

Semiconductor Manufacturing International Corporation

Land use RightsLand use Rights

• US GAAP

­ Classified­as­a­long-term­operating­lease

• PRC GAAP­ Classified­as­intangible­assets­before­self-used­­construction­or­development­­­and­begin­amortization­

­ Upon­construction,­the­carrying­amount­of­the­land­use­right­is­transferred­to­the­cost­of­fixed­assets­under­construction

­ Transfer­to­fixed­assets­and­depreciate

Semiconductor Manufacturing International Corporation

Assets impairmentAssets impairment

• US GAAP­ Impairment­triggered­if­an­asset's­carrying­amount­exceeds­the­expected­future­cash­flows­to­be­derived­from­the­asset­on­an­undiscounted­basis.

­ Measured­based­on­fair­value

­ Reversal­is­prohibited

• PRC GAAP­ Impairment­triggered­if­an­asset's­carrying­amount­exceeds­the­higher­of­the­asset’s­value-in-use­(discounted­present­value­of­the­asset’s­expected­future­cash­flows)­and­net­selling­price.

­ Measure­based­on­the­recoverable­amount­(the­higher­of­the­asset’s­value-in-use­and­net­selling­price).

­ Reversal­Required,­if­certain­criteria­are­met.

Semiconductor Manufacturing International Corporation

Pre-operating ExpensesPre-operating Expenses

• US GAAP

­ Pre-operating­expenses­are­expensed­as­incurred

• PRC GAAP

­ Pre-operating­expenses­are­accumulated­until­the­entity­commences­operations,­and­are­then­expensed

Semiconductor Manufacturing International Corporation

The Effects of Changes in Foreign The Effects of Changes in Foreign Exchange RatesExchange Rates

• US GAAP

­ Record­initially­at­the­rate­of­exchange­at the date of the transaction­(use­of­averages­permitted­if­a­reasonable­approximation­of­actual).

• PRC GAAP

­ Record­initially­at­the­rate­of­exchange­at the date of the transaction­or­on the first day of the month in which the transaction occurs.

Semiconductor Manufacturing International Corporation

The Effects of Changes in Foreign The Effects of Changes in Foreign Exchange Rates( continued)Exchange Rates( continued)

• US GAAP

­ Exchange­gains­or­losses­are­included­in­the­determination­of­net­income­for­the­period.

• PRC GAAP

­ Net­exchange­differences­arising­during­the­set-up­period­are­deferred­until­the­entity­commences­operations.

­ Exchange­differences­relating­to­project-specific­borrowing­for­the­construction­of­fixed­assets­to­be­capitalized­to­the­extent­that­it­arises­before­the­completion­of­the­fixed­asset.

­ Others­are­expensed.

Semiconductor Manufacturing International Corporation

The Effects of Changes in Foreign The Effects of Changes in Foreign Exchange Rates( continued)Exchange Rates( continued)• US GAAP

­ foreign­currency­gains­and­losses­relating­to­operational­activities­(receivables,­payables,­etc.)­within­income­from­operations. 

­ the­foreign­currency­exchange­gains­and­losses­related­to­debt­,­investment­and­cash­in­other­income­and­expense. 

­ .

• PRC GAAP

­ Foreign­currency­gains­and­losses­recorded­in­financial­expenses

Semiconductor Manufacturing International Corporation

Borrowing CostsBorrowing Costs

• US GAAP

­ Generally­includes­only­interest

­ All­interest­cost­incurred­during­the­assets'­acquisition­periods

­ Adjustment­on­borrowing­selection­–­consolidated­level­or­own­level

• PRC GAAP

­ Includes­interest,­amortizations­of­discounts­or­premiums,certain­ancillary­costs,­exchange­differences

­ Only­interest­of­project­­specific­loan­can­be­capitalized

Semiconductor Manufacturing International Corporation

Quantifying ContingenciesQuantifying Contingencies

• US GAAP

­ Low­end­of­the­range­of­possible­amounts

• PRC GAAP

­ Undiscounted­amount­of­the­best­estimate­to­settle­the­obligation

Semiconductor Manufacturing International Corporation

Revenue RecognitionRevenue Recognition

• US GAAP

­ Completion­of­percentage­­method­-­only­used­for­long-term­construction­type­contracts

­ More­detail­guidance,­such­as­SOP­97­–­2,­software­revenue­recognition,­EITF­00-21,­Revenue­Arrangement­with­Multiple­Deliverables­,­etc

­ Sales­discounts­net­off­with­sales­

• PRC GAAP

­ Completion­of­percentage­method­-­Required­whenever­costs­to­complete­can­be­reasonably­estimated,­and­project­crosses­an­accounting­period

­ Sales­discounts­recorded­separately

Semiconductor Manufacturing International Corporation

Subsidy incomeSubsidy income

• US GAAP

­ Subsidy­received­based­solely­on­a­capital­expenditure,­­can­reduce­the­cost­of­the­asset­by­the­amount­of­the­grant­or­treat­the­amount­of­the­grant­as­a­deferred­credit­and­amortizing­it­over­the­useful­life­of­the­asset­on­the­same­basis­used­to­depreciate­the­asset

­ Grants­related­to­income­are­sometimes­presented­as­a­credit­in­the­income­statement­

• PRC GAAP

­ Technology­development­subsidy­from­the­government­is­recorded­in­capital­surplus­after­the­project­and­the­related­assets­were­finished

­ Grants­related­to­assets,­recorded­in­capital­surplus

­ Grants­related­to­income,­recorded­in­income­statement­­

Semiconductor Manufacturing International Corporation

Income TaxesIncome Taxes

• US GAAP­ Current­tax­asset­or­liability­for­taxes­payable­or­refundable­for­current­year

­ Deferred­tax­asset­or­liability­resulting­from­temporary­differences

­ Measurement­based­on­enacted­tax­laws

­ Deferred­tax­asset­reduced­to­amount­expected­to­be­realized

• PRC GAAP­ May­use­either­(a)­tax­payable­method­(deferred­taxes­are­not­recognized)­or­(b)­tax­effect­accounting­using­an­income­statement­approach­(deferred­tax­assets­and­liabilities­are­recognized­for­differences­in­amounts­recognized­in­the­income­statement­and­on­the­tax­return)

­ Measurement­based­on­either­current­tax­rate­or­expected­tax­rate

Semiconductor Manufacturing International Corporation

Appropriated Staff Welfare and Appropriated Staff Welfare and Bonus FundsBonus Funds

• US GAAP

­ Estimated­and­accrued­in­Statement­of­Operations­on­a­pro-rata­basis­during­period

• PRC GAAP

­ Appropriated­directly­from­Retained­Earnings­after­Board­of­Directors­resolution

Semiconductor Manufacturing International Corporation

Cash Flow Statement PresentationCash Flow Statement Presentation

• US GAAP

­ The­Direct­Method­is­encouraged,­while­the­Indirect­Method­is­permitted

­ Interest­received­and­paid­be­classified­as­an­operating­activity

• PRC GAAP

­ The­Direct­Method­of­presentation­with­a­supporting­note­reconciling­operating­result­to­cash­flows­arising­from­operations­is­the­only­permitted­method

­ Interest­paid­classified­as­a­financing­activity

­ Interest­received­depends­on­its­nature

Semiconductor Manufacturing International Corporation

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