To meet the requirement of establishing a system of socialist market economy, the Standing Committee of the Ninth National People’s Congress revised and adopted the Ac-counting Law of the People's Republic of China (it will be referred to as the new Accounting Law) on October 31, 1999.The Accounting Law is the basic law for the accounting work of the country and it was issued and took effect in 1985when China's economic reform was in its early stage. It was first revised in1993, when the country's reform and opening up entered a key stage. This recent revision was made when the State is in the process of making great efforts to pull most of the large and medium-sized State-owned enterprise out of their adverse situation through reform, reorganization, renovation, and strengthening management. In this battle, the State also hopes to establish a modern enterprise management system. At the same time, more and more Chinese companies are listed, and such economic activities as merger, acquisition, bankruptcy, transfer of property rights, and assets reorganization are becoming more and more frequent, and all these activities are based on accounting information .In order to create a fair, stable, and safe market environment so that the national economic development may be based on reliable accounting information, this revision aims to guarantee that accounting material is true and complete, to pre-vent accountants from making unreal accounts, and to safeguard the order of the socialist market economy. The revision has improved the basic principle and various rules of the accounting law in the following aspects:
1．Emphasis on opening ac-counts in accordance with the law and basic rules for keeping accounts
Account books and other accounting records are the most important part of accounting work and also a prerequisite for the management and business operation of a unit. However, some Chinese units or enterprises do not have account books or their accounts do not meet the requirements of the related rules. So the newly revised Accounting Law stipulates that it is a compulsory obligation and duty for every unit to have account books and keep true and complete records in the books. The requirements rule that account books must be established in accordance with the Accounting Law, related rules, and the State unified system; and all units must stick to the principle that a unit can have only one account book (or one set) that reflects its business operation and property situation.
To guarantee that the records of the account book are true and complete, and to prevent accountants from keeping unreal records, the revised Accounting Law has clarified the basic principles for keeping accounts:
1) Any unit must conducts its ac-counting, fill in accounting forms or certificates, keep accounts and compile financial and accounting reports exactly according to its practical economic operation. Any unit is not allowed to con-duct its accounting on the basis of un-true economic operation and unreal material.
2) Specific requirements have been raised by the law about the duties for different accountants and the relation-ship between them, and so have been the requirements for the examination, registration, and establishment of the various sectors of accounting work including accounting certificates, account books, and financial and accounting reports.
3) To effectively stop the practice by units of keeping private accounts, the new law stipulates that all business operations of a unit should be recorded in the unit's account book, and any unit is not allowed to keep private account books of its own in violation of the unified accounting system.
4) To guarantee the safety of economic activities, the new law stipulates that the guarantees and undecided suits provided by the unit concerned should be explained in its financial and accounting report in accordance with the rules of the unified State accounting system.
5) Having taken into consideration the nature of accounting work and drawn upon the conventional practice of the standard international companies and enterprises, the revised law has made special specific regulations on ac-counting in companies and enterprises: any company or enterprise must never change the criterion or measurement method to decide the assets, debts, and rights and interests of the owner so that they may list the assets they do not have, overvalue or undervalue their as-sets, debts as well as their rights and interests, and or even to omit the record of their assets, debts or rights and interests at all; they can never give un-true record of their income, never post-pone confirming their income and never confirm their income in advance; they should never alter the criterion or method of measurement for deciding the costs or expenses, never record costs or expenses that do not exist, or over-value and undervalue costs or expenses; they should never alter the method for the calculation and allocation of profits, and they should never make up untrue profits and hide their profits.
2. To set up a system for a unit's leader to take responsibility for the truthfulness and integrity of the unit's accounting material
The newly-revised Accounting Law stipulates that the leader of a unit should be responsible for the accounting work of his or her unit and for the truthfulness and completeness of the accounting material in his units as well. This is an important change made in the law, and this stipulation is not only a specific legal requirement to bind unit leaders, but also represents an important principle of the revised law.
The former Accounting Law only considered accounting work as an ordinary task of an accountant, and neglected the important role a unit leader should play in guaranteeing the quality of accounting work and the truthfulness of accounting material, and thus failed to stipulate the legal responsibility of a unit leader in this respect. However, in practice, any problem with the truthful-ness of the accounting material of a unit is associated with the leader of the unit or at least the leader should be responsible for negligence in the management and supervision of accounting work. To meet some illegal demands or seek illegal profits, some leaders even instigate or order the accounting department or accountants to bend the rules in ac-counting, and thus the accountants are forced to bend the law. Under the market economy, many units are independent social economic entities, and their leaders are usually the top policy maker and manager, and they have the final say on almost all activities in their units. So, whether accountants working in these units can be honest and abide by the law in their work, to large extent, depends on the binding power of the law on their leaders. It is almost impossible to depend on accountants only to guarantee the truthfulness and completeness of the accounting material. Therefore, countries with a market economy place responsibility on unit leaders for the truthfulness and completeness of the accounting information. When an accountant provide surreal accounting information, his boss or leader will have to shoulder legal responsibility. This has already become an international practice.
This principle has set three requirements for unit leaders. First of all, unit leaders must have a sense of law and must respect accounting institutions and accountants, who are at the frontline of executing the accounting law, related rules, and the unified State ac-counting system. The accountants are conducting accounting activities them-selves and know the principles, methods, and policies. In the process of management, unit leaders should often go to the accountants for opinions and suggestions to avoid mistakes and violations of law. Secondly, unit leaders can never, for any reason, hint to or directly instigate the accountants or accounting institutions to violate the Accounting Law and bend the unified State ac-counting system. They should never threaten or force the accounting organs or accountants to bend the Accounting Law. Finally, unit leaders should never take revenge against accountants .The newly revised Accounting Law stipulates that any unit leaders, who take revenge against accountants who refuse to bend the law or regulations concerned by demoting them, dismissing them from their posts, or transfer-ring them to other positions, will face legal penalties if their avenging behavior is serious. Those whose avenging behavior is not so serious will be given administrative punishment. This stipulation has listed the specific ways in which the unit leader may act. This makes it easier for court to decide whether a unit leader has committed such crimes or not.
3. Strengthening internal super-vision system and optimizing the management of accountants' qualification
The new Accounting Law has made it an obligation for a unit to set up an internal supervision system over its ac-counting work. With the nature of being effective, procedural, and having a binding force, accounting work is closely related to a unit's policy makers, executive organ, supervision organ, and the departments of supply, production, and sale as well. In fact, accounting work has a close relationship with all people participating in economic activities. This relationship needs legal protection. Lack of a supervision sys-tem within a unit leads to messy ac-counts, loss of assets, accounts out-side the accounts under the accountant's control, economic activities which are not kept under the accountant's account, illegal accounts kept by departments without the right to establish accounts; mistakes in decision-making; blind investment; and compiling fake and unreal accounting reports in order to cover losses or present unreal achievements. In particular, the State needs to have an accounting supervision system to prevent State-owned enterprises and firms of which State holds the controlling share from committing such offences. So the new Accounting Law explicitly stipulates that an inner accounting supervision system must be established within all units, and the procedure and duties for people engaged in economic operations and accounting affairs must be divided in such a manner that these two groups of workers are separated and can oversee each other's work.
Under the socialist market economy, accounting work is not a matter just within a unit, it has a direct bearing on the related investors, creditors ,and the interests of those people who have economic contacts with the units. The quality of information provided by the accountants of a unit has a direct bearing on State macro-economic control and even on the overall economic stability and safety of the whole nation. Therefore, those engaged in accounting work must meet the requirements universally recognized by the society. The old Accounting Law did not stipulate the qualifications for accountants, and it only stipulated that accountants should have a command of the necessary professional knowledge, which is far from enough. To guarantee that accountants have basic professional competence and ethical standards, and to strengthen the supervision and management of accountants, the new Accounting Law stipulates that those engaged in accounting work must have an accountant's license. Those in charge of the accounting work of a unit (or who shoulder certain responsibility in the accounting work in a unit) must have the professional title of a senior accountant besides an accountant's license, or must have work experience of at least three years. Those, who have commit-ted such crimes as providing unreal ac-counting report, keeping unreal ac-counts, hiding or deliberately destroying accounting records, account books, financial and accounting report, embezzlements, misappropriation of public funds, and other related offences, must never be given or obtain again an accountant's license, and neither must those ex-convicts who have ever com-mitted such crimes, as stipulated in the new Accounting Law. Those whose accountant's licenses have been re-yoked for violation of laws or related rules, must not get new accountant's licenses within five years from the day their licenses are revoked, according to the new Accounting Law. These stipulations have established a system to prevent unqualified accountants from entering the field of accounting, and thus make it possible for accountants to resist interference from various sources in their work.
4. Strengthening auditing work
In the implementation of the old Ac-counting Law and the Law of the People's Republic of China on Certified Public Accountants, there were some problems in the auditing work of the certified public accountants. Besides unreal accounts and financial accounting reports, there are also some unreal auditing reports, for which two problems are to blame. On the one hand, some units do not provide certified public accountants to audit their work with real documents or material, and some even take illegal measures to ask the registered senior accountant to give unreal or improper auditing reports. On the other hand, some certified public accountants or accountants' offices do not have strict discipline on themselves, and they meet their clients' improper or illegal demands in order to keep a permanent working relationship with these clients, as a result, they violate related rules and procedure to offer unreal auditing reports, which causes harm to society. To prevent this from happening again, the new Accounting Law stipulates that those units, which are being audited, must provide real material and documents for certified public accountants, and should never ask ac-counts' offices to offer unreal auditing reports. The new Accounting Law also gives financial departments concerned the right and duty to supervise auditing reports provided by accountants' offices so that the truthfulness and completeness of the accounting information based on the financial report of a unit may be effectively guaranteed.
However, what should be noticed is the fact that what the financial department concerned supervises is only the certified public accountants and accountants' offices and the reports they provide, they are not allowed to interfere in the auditing work of the certified public accountants, as being required by the independent position of the certified public accountants. Furthermore, the financial departments concerned supervise only the procedure and content of the auditing report. A registered senior accountant has a set of scientific procedure for auditing, and as long as the procedure is complete and legitimate, the quality of the auditing report should be able to be guaranteed. As for the content, whether the auditing conclusion and the facts on which the conclusion is based tally with the economic activities and assets of the unit audited should be the focus for supervision by the financial department concerned. In addition, the financial departments do not check all the auditing reports, and they just randomly choose some to check. In this way, any auditing reports may fall under the supervision. Therefore, the financial departments can check and supervise all the auditing reports.
5. Scientifically define the boundary of violations and intensify crackdown on violations
The new accounting law has more specific and severe rules for the identification of legal responsibilities of and penalties for violations generally existing in the accounting work.
1) The violations by accountants are divided into five kinds: the first kind should be given administrative disciplinary punishments, they include using improper account books against the rule, random alteration of accounting methods, providing different users with financial accounting reports based on different facts, employing of accountants not in keeping with the stipulation of the accounting law and some other violations; the second kind includes deliberately forging accounting certificates, account books. and com-piling unreal financial report; the third kind refers to the action of hiding or deliberately destroying accounting certificates, account books, and financial re-ports which must be kept according to law; the fourth kind is the action of giving hints to accountants, or ordering accountants and accounting organs or forcing them to make up or alter ac-counting documents. account books, and to make up unreal financial reports, or to hide and destroy accounting certificates, account books and financial report that must be kept according to law; the fifth kind is that unit leaders take revenge against accountants.
2) The new law stipulates four types of administrative punishment for the first kind of violations: criticism by giving a public notice, imposition of fines, administrative discipline, and revocation of an accountant's license. These specific measures have made it possible for the violator to really shoulder their le-gal responsibilities. Of the four measures, criticism by public notice has a special role to play. In the market economy, commercial reputation for a unit is quite important and for its foreign-oriented economic activities as well, the accuracy of its accounting will directly affect its reputation. To give a negative evaluation of a unit and particularly an enterprise's accounting in-formation and make the assessment public within a certain area can be an annoyance shunned by any enterprise. So criticism through public notice does not inflict direct economic punishment on a unit or enterprise that violates the accounting law, but it will certainly have a long term impact on its economic benefits. In this sense, this measure is an effective deterrent to violators. At the same time, to criticize a violator by issuing a public notice means a fair protection of those units which have abided by the law. It tallies with the nature of the market economy
3) The new Accounting Law has clarified that the financial department is an administrative law enforcement organ, stipulating that financial departments above county level inflict fines on the accounting law violators. At the same time, the new accounting law stipulates that those offenders who have violated both the accounting law and other laws should be dealt with according to law; if the offences are not serious enough for legal penalties, the offenders should be disciplined or punished by related departments. Thus the new Accounting Law has established a complete legal responsibility system for ac-counting law violations.