Changes in the New Accounting System for Private Non-Profit Organizations

Analysis of the Changes in the New Accounting System for Private Non-profit Organizations and Its Impact on Financial Accounting

On December 20, 2024, the Ministry of Finance issued the Accounting System for Private Non-profit Organizations 《民间非营利组织会计制度》(Finance and Accounting 财会 [2024] No. 25), marking the first major revision since the original system was implemented in 2004. The new system will officially come into effect on January 1, 2026.

This revision primarily involves adjustments in three key areas: account classification, accounting methods, and information disclosure. These changes will directly impact the financial accounting and reporting practices of non-profit organizations. This article compares and summarizes the key changes between the new and previous systems, reviews significant changes, and provides practical references for routine accounting procedures for non-profit organizations during this transitional period.

Key Changes in Accounting Methods

1. Simplified Treatment of Restricted Net Assets
   The new system simplifies the reclassification requirements for restricted net assets. Revenue and expenses are now divided into restricted and unrestricted accounting and are directly transferred to restricted net assets at the end of the period. The requirement to reclassify them as unrestricted net assets upon use has been eliminated.
   
2. Standardized Cost Method for Long-Term Equity Investments
   Under the previous system, long-term equity investments could be accounted for using either the equity method or the cost method. The new system uniformly stipulates the use of the cost method and requires disclosure of information such as the investee’s shareholding ratio, degree of influence, date of investment, and subscribed versus paid-in capital in the notes to enhance transparency.
   
3. Clarified Depreciation Start and End Dates for Fixed Assets
   The new system stipulates that depreciation for newly added fixed assets begins in the month they are acquired, and depreciation stops in the month the assets are disposed of. This standardizes practical operating standards and reduces subjectivity in accounting judgments.
   
4. Adjustment Scope of Administrative Expenses
   Previously, asset impairment losses were included in “Administrative Expenses”. The new system classifies them under a separate account “Asset Impairment Losses” to improve clarity in cost structure and support more accurate assessments of operating costs and risks.
   

New Information Disclosure Requirements

1. Related-Party Transaction Disclosures
   Organizations must establish a list of related-party relationships and clearly define the types and elements of related-party transactions. Notes should disclose the nature of the related-party relationships, transaction types, and key elements, including transaction amounts, unsettled balances, and terms and conditions. The pricing basis of such transactions must also be explained to ensure fairness.
   
2. Disclosures for Long-Term Equity Investments
   According to the new system, notes must disclose the investee’s name, acquisition method, subscribed and paid-in capital with corresponding dates of contribution, and shareholding ratio. The notes must also disclose the extent of the impact on the investee and any changes thereto, as well as the investee’s net profit or net loss for the year.
   
3. Service Donation Disclosure
   For the first time, the new system includes “Service Donations” within the accounting treatment and clarifies the disclosure requirements. If the donor provides valid invoices or documents and the amount reflects the fair value of the services, the donation should be recorded in the accounts; otherwise, it is recorded at a nominal amount (RMB 1). The source, nature, purpose, and recording basis of the service donations must be explained in the notes to facilitate regulatory and public oversight.

Key Transition Steps and Operational Recommendations

To ensure a smooth transition, the Ministry of Finance has issued the “Regulations on Handling Issues Concerning the Transition Between the Old and New Accounting Systems for Private Non-Profit Organizations” 《民间非营利组织新旧会计制度有关衔接问题的处理规定》(Finance and Accounting 财会 [2025] No. 6). It recommends that organizations complete these key tasks within the following timeframes:

By December 31, 2025:

1. Prepare the annual financial accounting statements under the old system.
2. Conduct a comprehensive review and inventory of assets and liabilities.
3. Prepare the new account structures and report formats according to the new system.

As of January 1, 2026:

1. Establish new accounts under the new system and transfer balances from the old accounts to the new accounts.
2. Register any previously unrecorded items.
3. Adjust the balances of relevant new accounts.
4. Prepare a balance sheet dated January 1, 2026, per the new system, recording only the “opening balance at the beginning of the year (年初余额).”
5. Implement the new income and expense accounts and begin accounting according to the new system.

Conclusion

The release of the Accounting System for Private Non-profit Organizations 《民间非营利组织会计制度》(Finance and Accounting 财会 [2024] No. 25) marks a significant step toward greater standardization and transparency in China’s financial accounting system for private NPOs. The updated system optimizes account classification, accounting methods, and disclosure requirements. It addresses practical challenges while aligning with the policy orientation of stricter supervision and transparent governance.

Private non-profit organizations should pay close attention to the impact of the system change, promptly adjust their accounting systems, upgrade their financial systems, strengthen staff training, and develop transition plans tailored to their specific circumstances to ensure a smooth transition to the new system in 2026.