This service is a core module of China Compliance Risk Review™, designed to support the overall compliance infrastructure for China operations.
Many China-related risks do not arise from wrongdoing they arise when no one can clearly explain what happened.
In many foreign-invested enterprises operating in China, the most unsettling risks for headquarters, investors, or auditors are not specific tax items, but unresolved governance and explainability issues, such as:
Decision-making overly concentrated in individuals
Limited visibility over seals, contracts, payments, and invoices
Material matters reported only after the fact
Inconsistent explanations when questioned
These issues may not violate explicit regulations, but they significantly increase governance, compliance, and reputational risk.
The HQ Explainability & Governance Risk Review is designed to address this gap.
What Is HQ Explainability Risk
HQ explainability risk refers to whether:
The China entity’s actions can be timely understood, monitored, and credibly explained to headquarters when required.
This risk often manifests as:
Unclear authority and approval boundaries
Internal controls that exist on paper but rely on individuals
Headquarters lacking real-time insight into key decisions
Risks accumulating without structured escalation mechanisms
Such issues are frequently magnified during audits, inspections, or due diligence.
Key Areas Covered
1 | Decision-Making and Authorization Structure
Whether decision-making is overly centralized
Whether major actions follow defined approval paths
Whether HQ governance is substantive or merely formal
2 | Control Over Seals, Contracts, and Payments
Transparency and control over company seals
Traceability of contract execution
Alignment between payments, contracts, and business substance
3 | Invoice, Expense, and Business Explainability
Whether expenses can be traced back to real business activities
Whether “processable but unexplainable” items exist
Whether management understands the overall cost structure
4 | Information Asymmetry and Risk Escalation
Whether HQ learns of issues only through financial statements
Whether key matters are reported in a timely manner
Whether a consistent compliance narrative exists
Typical High-Risk Scenarios
Excessive discretion granted to local management
HQ relies on trust without sufficient transparency
Explanations are assembled ad hoc before audits or deals
Staff turnover leaves historical decisions unexplained
In these cases, the core issue is not non-compliance — it is the loss of explainability.
What This Review Does Not Include
This service does not include:
Internal control design or implementation
Internal audits or investigations
Legal opinions or certifications
Judgments on individual management conduct
This is a governance risk and explainability assessment, not an execution or enforcement service.
Deliverables
HQ explainability risk rating (Low / Medium / High)
Identification of key governance blind spots
Differentiation between explainable and critical risks
Executive-level governance risk summary
Who This Review Is Designed For
Foreign-invested enterprises with China operations
Groups experiencing HQ–China information asymmetry
Organizations with heightened sensitivity to governance control
Companies preparing for audits, transactions, or leadership changes
Position Within China Compliance Risk Review™
The HQ Explainability & Governance Risk Review serves as:
The final safeguard within China Compliance Risk Review™
A governance-layer complement to tax and payment risk modules
A critical decision-support tool for headquarters
Many risks do not arise because something went wrong, but because, when questioned, no one can clearly explain why decisions were made.
We do not make decisions for you; we only help you clarify facts and risks.
Phone : 400 800 7472
Email : info@rtfcpa.com
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