Qifu Technology : RECONCILIATION BETWEEN U.S. GAAP AND INTERNATIONAL FINANCING REPORTING STANDARDS - Form 6-K

RECONCILIATION BETWEEN U.S. GAAP AND INTERNATIONAL FINANCING REPORTING STANDARDS

The financial statements are prepared in accordance with U.S. GAAP, which differ in certain respects from International Financial Reporting Standards ("IFRS"). The effects of material differences between the financial statements of the Group prepared under U.S. GAAP and IFRS are as follows:

Consolidated Balance Sheet		As of December 31, 2022 Amounts in thousands of Renminbi ("RMB")
					IFRS adjustments
		Amounts as reported under U.S. GAAP			Expected credit losses, net of tax (Note i)			Effective interest rate on loans receivable, net of tax (Note ii)			Share-based compensation (Note iii)			Financial guarantee, net of tax (Note iv)			Amounts as reported under IFRS
		RMB			RMB			RMB			RMB			RMB			RMB
ASSETS
Current assets:
Financial assets receivable, net			2,982,076				-				-				-				(2,966,528	)			15,548
Amounts due from related parties			394,872				-				-				-				(33,296	)			361,576
Loans receivable, net			15,347,662				-				(88,430	)			-				-				15,259,232
Total current assets			34,097,466				-				(88,430	)			-				(2,999,824	)			31,009,212
Non-current assets:
Financial assets receivable, net-noncurrent			688,843				-				-				-				(688,843	)			-
Amounts due from related parties			33,236				-				-				-				(6,720	)			26,516
Loans receivable, net-noncurrent			3,136,994				137,155				(44,120	)			-				-				3,230,029
Deferred tax assets			1,019,171				72,932				-				-				(132,927	)			959,176
Total non-current assets			6,245,704				210,087				(44,120	)			-				(828,490	)			5,583,181
TOTAL ASSETS			40,343,170				210,087				(132,550	)			-				(3,828,314	)			36,592,393
LIABILITIES AND EQUITY
LIABILITIES
Current liabilities:
Guarantee liabilities-stand ready			4,120,346				-				-				-				(4,120,346	)			-
Guarantee liabilities-contingent			3,418,391				(790,950	)			-				-				-				2,627,441
Other tax payable			182,398				-				(7,502	)			-				-				174,896
Total current liabilities			16,749,918				(790,950	)			(7,502	)			-				(4,120,346	)			11,831,120
Non-current liabilities:
Deferred tax liabilities			100,835				-				(19,744	)			-				-				81,091
Total non-current liabilities			4,661,955				-				(19,744	)			-				-				4,642,211
TOTAL LIABILITIES			21,411,873				(790,950	)			(27,246	)			-				(4,120,346	)			16,473,331
SHAREHOLDERS' EQUITY
Additional paid-in capital			6,095,225				-				-				71,032				-				6,166,257
Retained earnings			12,803,684				1,001,037				(105,304	)			(71,032	)			292,032				13,920,417
TOTAL QIFU TECHNOLOGY INC. EQUITY			18,847,156				1,001,037				(105,304	)			-				292,032				20,034,921
TOTAL EQUITY			18,931,297				1,001,037				(105,304	)			-				292,032				20,119,062
TOTAL LIABILITIES AND EQUITY			40,343,170				210,087				(132,550	)			-				(3,828,314	)			36,592,393

Consolidated Statement of Operations		Year ended December 31, 2022 Amounts in thousands of Renminbi ("RMB")
					IFRS adjustments
		Amounts as reported under U.S. GAAP			Expected credit losses, net of tax (Note i)			Effective interest rate on loans receivable, net of tax (Note ii)			Share-based compensation (Note iii)			Financial guarantee, net of tax (Note iv)			Amounts as reported under IFRS
		RMB			RMB			RMB			RMB			RMB			RMB
Revenue, net of value-added tax and related surcharges:
Credit driven services			11,586,251				-				(105,922	)			-				-				11,480,329
Financing income			3,487,951				-				(105,922	)			-				-				3,382,029
Total net revenue			16,553,930				-				(105,922	)			-				-				16,448,008
Operating costs and expenses:
Facilitation, origination and servicing			2,373,458				-				-				7,041				-				2,380,499
Sales and marketing			2,206,948				-				-				(640	)			-				2,206,308
General and administrative			412,794				-				-				(3,006	)			-				409,788
Provision for loans receivable			1,580,306				(54,012	)			-				-				-				1,526,294
Provision for financial assets receivable			397,951				-				-				-				(280,032	)			117,919
Provision for contingent liabilities			4,367,776				(267,874	)			-				-				-				4,099,902
Total operating costs and expenses			12,081,746				(321,886	)			-				3,395				(280,032	)			11,483,223
Income from operations			4,472,184				321,886				(105,922	)			(3,395	)			280,032				4,964,785
Income before income tax expense			4,742,372				321,886				(105,922	)			(3,395	)			280,032				5,234,973
Income tax expense			(736,804	)			(50,010	)			16,457				-				(43,507	)			(813,864	)
Net income			4,005,568				271,876				(89,465	)			(3,395	)			236,525				4,421,109
Net income attributable to ordinary shareholders of the Company			4,024,173				271,876				(89,465	)			(3,395	)			236,525				4,439,714

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Consolidated Balance Sheet		As of December 31, 2023 Amounts in thousands of Renminbi ("RMB")
					IFRS adjustments
		Amounts as reported under U.S. GAAP			Expected credit losses, net of tax (Note i)			Effective interest rate on loans receivable, net of tax (Note ii)			Share-based compensation (Note iii)			Financial guarantee, net of tax (Note iv)			Amounts as reported under IFRS
		RMB			RMB			RMB			RMB			RMB			RMB
ASSETS
Current assets:
Financial assets receivable, net			2,522,543				-				-				-				(2,515,354	)			7,189
Amounts due from related parties			45,346				-				-				-				(8,942	)			36,404
Loans receivable, net			24,604,487				-				(43,934	)			-				-				24,560,553
Total current assets			39,796,028				-				(43,934	)			-				(2,524,296	)			37,227,798
Non-current assets:
Financial assets receivable, net-noncurrent			596,330				-				-				-				(596,330	)			-
Amounts due from related parties			4,240				-				-				-				(1,057	)			3,183
Loans receivable, net-noncurrent			2,898,005				148,675				(1,286	)			-				-				3,045,394
Deferred tax assets			1,067,738				69,350				-				-				(135,172	)			1,001,916
Total non-current assets			6,022,544				218,025				(1,286	)			-				(732,559	)			5,506,724
TOTAL ASSETS			45,818,572				218,025				(45,220	)			-				(3,256,855	)			42,734,522
LIABILITIES AND EQUITY
LIABILITIES
Current liabilities:
Contract liability			-				-				-				-				388,181				388,181
Guarantee liabilities-stand ready			3,949,601				-				-				-				(3,949,601	)			-
Guarantee liabilities-contingent			3,207,264				(803,012	)			-				-				-				2,404,252
Other tax payable			163,252				-				(2,560	)			-				-				160,692
Total current liabilities			19,899,619				(803,012	)			(2,560	)			-				(3,561,420	)			15,532,627
Non-current liabilities:
Deferred tax liabilities			224,823				-				(7,655	)			-				-				217,168
Total non-current liabilities			3,909,096				-				(7,655	)			-				-				3,901,441
TOTAL LIABILITIES			23,808,715				(803,012	)			(10,215	)			-				(3,561,420	)			19,434,068
SHAREHOLDERS' EQUITY
Additional paid-in capital			6,059,439				-				-				17,505				-				6,076,944
Retained earnings			16,297,316				1,021,037				(35,005	)			(17,505	)			304,565				17,570,408
TOTAL QIFU TECHNOLOGY INC. EQUITY			21,937,483				1,021,037				(35,005	)			-				304,565				23,228,080
TOTAL EQUITY			22,009,857				1,021,037				(35,005	)			-				304,565				23,300,454
TOTAL LIABILITIES AND EQUITY			45,818,572				218,025				(45,220	)			-				(3,256,855	)			42,734,522

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Consolidated Statement of Operations		Year ended December 31, 2023 Amounts in thousands of Renminbi ("RMB")
					IFRS adjustments
		Amounts as reported under U.S. GAAP			Expected credit losses, net of tax (Note i)			Effective interest rate on loans receivable, net of tax (Note ii)			Share-based compensation (Note iii)			Financial guarantee, net of tax (Note iv)			Amounts as reported under IFRS
		RMB			RMB			RMB			RMB			RMB			RMB
Revenue, net of value-added tax and related surcharges:
Credit driven services			11,738,560				-				82,387				-				-				11,820,947
Financing income			5,109,921				-				82,387				-				-				5,192,308
Total net revenue			16,290,027				-				82,387				-				-				16,372,414
Operating costs and expenses:
Facilitation, origination and servicing			2,659,912				-				-				(23,643	)			-				2,636,269
Sales and marketing			1,939,885				-				-				(5,096	)			-				1,934,789
General and administrative			421,076				-				-				(24,788	)			-				396,288
Provision for loans receivable			2,151,046				(11,520	)			-				-				-				2,139,526
Provision for financial assets receivable			386,090				-				-				-				(14,778	)			371,312
Provision for contingent liabilities			3,053,810				(12,062	)			-				-				-				3,041,748
Total operating costs and expenses			11,433,063				(23,582	)			-				(53,527	)			(14,778	)			11,341,176
Income from operations			4,856,964				23,582				82,387				53,527				14,778				5,031,238
Income before income tax expense			5,277,451				23,582				82,387				53,527				14,778				5,451,725
Income tax expense			(1,008,874	)			(3,582	)			(12,088	)			-				(2,245	)			(1,026,789	)
Net income			4,268,577				20,000				70,299				53,527				12,533				4,424,936
Net income attributable to ordinary shareholders of the Company			4,285,336				20,000				70,299				53,527				12,533				4,441,695

Notes:

(i)	Expected credit losses, net of tax

Under U.S. GAAP, ASC 326 requires recognition of allowances upon origination or acquisition of financial assets at an estimate to reflect expected credit losses over the contractual term of the financial assets (the current expected credit loss or the "CECL" model), and adjusted as of each subsequent reporting period. Under IFRS, in accordance with IFRS 9, only the portion of lifetime expected credit loss ("ECL") that results from default events that are possible within 12 months after the reporting date is recorded ("stage 1") upon initial recognition. Lifetime expected credit losses are subsequently recorded only if there is a significant increase in the credit risk of the asset ("stage 2"). Once there is objective evidence of impairment ("stage 3"), lifetime ECL continues to be recognized, but interest revenue is calculated on the net carrying amount (that is, amortized cost net of the credit allowance). Accordingly, the reconciliation includes a difference in the credit losses for loans receivable and guarantee liabilities to reflect the difference between IFRS 9 and ASC 326.

(ii)	Effective interest rate on loans receivable, net of tax

The Group recognizes revenue fees and interests charged to the borrowers over the lifetime of the loans using the effective interest method under "financing income" in the consolidated statement of operations. Under U.S. GAAP, the effective interest rate is computed on the basis of the contractual cash flows over the contractual term of the loan. Under IFRS, the effective interest rate is computed on the basis of the estimated cash flows that are expected to be received over the expected life of a loan by considering all of the loan's contractual terms (e.g., prepayment and similar options). Accordingly, the reconciliation includes a difference in financing income and loans receivable as a result.

(iii)

Share-based compensation

The Group granted options and restricted shares with service condition only to employees and the share-based compensation expenses were recognized over the vesting period using straight-line method under U.S. GAAP. The Company is allowed to make an accounting policy election to account for awards forfeitures as they occur or by estimating expected forfeitures as compensation cost is recognized. The Company elects to account for forfeitures in the period they occur as a deduction to expense. While under IFRS, the graded vesting method must be applied and in regard of forfeitures of the awards, the Group is required to estimate the forfeitures. Accordingly, the reconciliation includes an expense of RMB3,395 and an income of RMB53,527 in the consolidated statements of operations for each of the years ended December 31, 2022 and 2023, respectively.

(iv)	Financial guarantee, net of tax

Under U.S. GAAP, the Group adopted ASC 326, Financial Instruments - Credit Losses, which requires gross accounting for guarantee liability. As a result, at inception of the guarantee, the Group will recognize both a stand-ready guarantee liability under ASC 460 with an associated financial assets receivable, and a contingent guarantee liability with an allowance under CECL model. Subsequent to the initial recognition, the ASC 460 stand-ready guarantee liability is released into guarantee revenue on a straight-line basis over the term of the guarantee, while the contingent guarantee is reduced by the payouts made by the Group to compensate the investors upon borrowers' default. Under IFRS, according to IFRS 9 and IFRS 15, we chose to apply the accounting policy that guarantee premium receivable is accrued and the corresponding revenue recognized on a monthly basis as the service fees are due and collected by installment rather than upfront. After initial recognition, we subsequently measure the financial guarantees at the higher of (1) the amount of the loss allowance and (2) the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of IFRS 15. Accordingly, the reconciliation includes a difference in financial guarantee to reduce the liabilities recorded.

Tax impacts for each difference have been reflected in respective columns.

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