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August 14, 2008

Management accounting body releases Chinese accounting study

The US-based Institute of Management Accountants (IMA) has released a report on a two-year study that sought to understand the development of Chinese accounting standards and accounting systems, as well as the cost accounting system and cost management practices of Chinese enterprises.

Costing Methodologies and Cost Management Practices in the Peoples’ Republic of China reviewed the costing practices of more than 200 Chinese state-owned enterprises, listed companies and privately-owned companies. It was conducted by the IMA with assistance from the Ministry of Commerce of China.

Conclusions drawn about the finance and accounting function included that the role of the accounting department under China’s state-managed economy was generally limited to the bookkeeping function. However, most Chinese companies had evolved their finance and accounting departments to reflect the greater role and responsibilities prevalent in similar departments in the West.

The IMA concluded that, as in the West, continued efforts are needed by most companies to have these departments fulfil their potential and become part of the strategic management team of their organisations.

Key findings relating to product costing included that China’s adoption of Accounting System for Business Enterprises (ASBE) in 2006 brought external financial reporting by Chinese companies closer to international standards. The report noted that while differences remain between the costing practices of Chinese and Western companies, a convergence of practice is in process. ASBE also corrected some of the instances where cost items had been inappropriately treated according to Chinese accounting regulations.

The report found the cost management systems of many Chinese companies reflect the planning and control systems previously used under the state-managed economy. However, it noted many practices employed under the planned economy were similar to those practiced by companies in market economies.

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