December 2, 1999	atimes.com

China Accounting cheats to be brought to book BEIJING - The Accounting Law of the People's Republic of China, which was adopted at the 12th session of the Standing Committee of the Ninth National People's Congress on October 31, will come into effect on July 1, 2000. This is a matter of major importance in the areas of finance and accounting. The new accounting law is a development of the original accounting law promulgated in 1983 and revised in 1993 as the old one could not keep pace with the new economic situation. All the articles of the old accounting law were rewritten except the one about accounting year. In terms of management, there are the following changes in the accounting law. 1. It has made it clear that leader of a unit is responsible for the accounting behavior of its unit. The Accounting Law provides that leaders of units shall be responsible for the authenticity and completeness of the accounting work and accounting materials of their own units and leaders of units shall ensure that the financial and accounting statements are true to facts and complete. This is regarded as one of the major breakthroughs in amending the accounting law. In fact, the change is directed at the prevailing problem of forging accounting books. In recent years, many enterprises and units have resorted to the ill practice of forging accounting books and financial statements and even the accounts disclosed by listed companies are false. Some people mockingly said that ''accounting is the synonym of forged accounts''. But in the past, the leaders, accountants and other personnel of a unit were all subjects responsible for accounting. The result: there was no one held responsible. There was no principal responsible person to be found even if the forged accounts were discovered. If you say the account should be responsible, the accountant would say that it was the leadership that made him do so. But the leadership would say that the accountant was the actual operator and should therefore be held responsible. Others would say that they were neither leaders nor accountants and there was no way of making them accountable. So the law could not punish all the people. It was either the case of putting blame on everybody or putting off the case indefinitely until it fizzled out. This is one of the reasons why many enterprises and units dared to forge accounts. The new law has stopped this loophole. If any unit is found to have forged accounts, the principal leader of the unit would be held responsible and there would be no shirking of responsibilities. Although the new law comes into effect next year, some places have already followed the law in handling some specific problems. In Zhejiang Province, the general manager of a company was neither guilty of corruption or accepting bribes, but he tacitly consent to the accountant forging accounts to evade state tax amounting to 17 million yuan and local tax amounting to 20 million yuan. For this, he was removed and punished according to law. This has aroused a big repercussion in the province. It is thus believed that the ill practice of forging accounts will surely be curtailed. 2. The new law has an addition chapter on the special provisions on the accounting transactions of companies and enterprises, providing that companies and enterprises shall observe the requirements of the national unified accounting system and confirm, measure and record accounting factors according to what business transactions that have actually taken place and in compliance with the provisions of the national unified accounting system. Since the founding of the People's Republic, the system of accounting transactions has not been independent, depending, to a large degree, on other laws and regulations and there has not been much stress on the conformation and measurements of accounting factors themselves. For instance, it was not up to accountants to decide on the computation and drawing of depreciation of fixed assets and the computation and drawing of accounts receivable and reserve against bad accounts. It was the financial system that decided. This is a particular model of accounting under the planned economy. It is, in fact, the simplest way of keeping accounts. The revised new law provides that companies and enterprises shall confirm, measure and record assets, liabilities, proprietary rights, income, expenses, cost and profit according to what business transactions that have actually taken place and in compliance with the provisions of the national unified accounting system. There should be neither overages nor shortages. This has provided the prerequisite for accountants to display their functions. 3. The new law has added provisions about supervision, by giving special stress to internal control system that includes internal accounting system and internal management system. The internal accounting system is mainly associated with property security and the reliability of accounting records, such as authorization and approval system, the control of physical property and internal auditing. The internal control system is associated mainly with economic efficiency and implementation of management principles, such as statistical analysis, performance reports, training of employees and quality control. Theoretically, internal control should not be written into the accounting law as a separate accounting problem. However, because the internal control system is very important and other laws and regulations have no relevant provisions, the new accounting law makes some specific provisions on this. Property management is especially important for a country that has the public ownership in the predominant position like China. Many shocking criminal cases involving big amount of money are the direct consequence of getting out of control internally. So the establishment of internal control system would display a good role in eliminating corruption, preventing capital drain and improving economic efficiency. 4. The new law has made legal liabilities more definite and stricter. The original accounting law also had legal liability clauses, but they are very abstract and not quite operable. There has been no one punished according to the law. But the new law provides specific provisions on what should be punished administratively and what should be punished criminally. The clear definition of legal liabilities is favorable to ensure the implementation of the law. So the new accounting law is a legal code that has raised many new demands on management. It is a law that strengthens the management of accounting . (Asia Pulse/Xinhua)

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