Revision of the Administrative Measures for Agency Bookkeeping and Standardization of Basic Work of Accounting (修改<代理记账管理办法><会计基础工作规范>的决定)
Since 2016 the Chinese Ministry of Finance has issued 27 documents, including 5 documents to promote the development of Management Accounting Guidance System(MAGS), in order to adapt the actual needs of management accounting practice. In fact, strategic management, budget management and risk management had been widely used by most modern enterprises even by many large-scale state-owned companies even if there is no unified guidance system for practitioners in China. The setup of MAGS is an important task for the Chinese Ministry of Finance and more related guidance documents will be issued in the next five years since it also been listed in the “13th Five-Year Plan”.
While management accounting practitioners are crying out for a thorough guidance system of management accounting issued by official authority, the Chinese government hopes that setting up its independent management accounting system could be a good opportunity and approach to improve China’s management accounting level more quickly. As a result, the development of Chinese management accounting could be in line with the developing trend of international management accounting, such as the recently launched accounting practice statements of IFAC (International Federation of Accountants), CIMA (The Chartered Institute of Management Accountants) and ICMA (Institute of Certified Management Accountants).
Among the documents issued, No.202, No.604 and No.700 rose some questions as follows:
As for No.202, zero-base budget is more complex compared to incremental budget and has a bigger workload. Therefore, should it be applicable to very small companies or construction companies, which have project budgets and over one year time horizon? Furthermore, there is no detail explanation, in this guidance document, on how to transfer the zero-base budget to incremental base budget.
As for No.604, there is a query about the performance prism. According to the first article, the performance prism should take all company’s stakeholders into consideration, including shareholders, creditor, suppliers, employee and government, but how can a company balance the interest of all stakeholders, especially the local government, which is so powerful in China?
As for No.700, risk management needs a professional knowledge and a complex data model and most of small company do not have a department of risk management and often purchase outsource risk management service. In the guidance document should be added a special article for small company since, at the current update, there is no advise on how to manage or achieve the outsource service of risk management from independent third party. For instance, set up risk monitor and warning system, and risk management assessment are very hard and expensive for small companies to complete by themselves.
These management accounting documents will face strong challenges in China. In fact, in the era of big data, more and more basic bookkeeping work, that used to be done manually by accountants, will be run by financial software. In the future, with the development of AI technology, fundamental accounting post would be replaced by AI system. As a result, accountants must involve more and more in strategic or risk management within enterprises. Their key role will continue to shift to management accounting and it would be harder to gain profit in the traditional industry of outsourcing bookkeeping or tax filing. Businesses should provide management accounting service such as budget review or preparing, performance management, KPI setup and risk management since companies, such as AsecorpChina, have very strong experiences and resources in the HR, accounting and tax consulting field. Studying and being familiar with MAGS is very important for consulting firms even if MAGS is not a mandatory requirement nowadays, but it could be easily the next standard in the future just like ASBE (Accounting Standards for Business Enterprises).
William Gu
AsecorpChina Tax&Accounting