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Features - Editor, 4 February 2008

Management Accounting for China Business Supremacy (Part 2)



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Management Accounting for China Business Supremacy (Part 1)

Inflation & Related Adjustments to See True China Business Values

Even highly envious adversaries of China business are justified in expressing fears about inflation as a result of the unprecedented economic growth of an alleged sleeping giant of yesteryear! The eventual reconstruction of vast areas destroyed by US military forces and their allies, to rid resource-rich areas of the Middle East from inimical forces, may eventually rival the frenetic pace of peaceful China business growth, but it remains without parallel even in the halcyon days of the Marshall Plan. Economic progress by myriad Chinese citizens, and geometric demand growth in the consumption of a multitude of materials and intangible resources, combine to make gaps between supplies and demands as factors of dismay rather than delight.

It has become common for all manners of traders to fear China business, simply because of the incredible dimensions of its various requirements! The country even imports basic materials such as coal, though it is a world beater in terms of its indigenous production.

Inflation adjustment is a primary plank of Management Accounting. Pricing decisions are especially susceptible to errors due to inadequate depreciation provisions in national tax laws. There are also glaring lacunae in stock market analytical systems that the practice of discounting future cash flows does not get the widespread attention which is a cornerstone of all investment appraisals in formal business management. Traditional stock exchange practices of looking at historic business trends also ignore the importance of comparing the present with the past at constant prices. Finally, the delusion of nominal business results fogs the visions of politicians and bureaucrats who seek to curry favor by quoting growth of Gross Domestic Product, ignoring the effects of inflation on the poor. Though Management Accounting has strategic business benefits beyond inflation corrections, the aspect of showing true pictures of management performance levels act as reliable bulwarks against misleading evaluations.

Since Management Accounting shows costs that escape statutory systems of treasury, environmental and social accounting matters are logical extensions of initiatives to protect stocks from distorted valuations. This is why we have started work on our next article in this series as mentioned in the first section of this piece. Do you agree that Management Accounting should become mandatory for stock market listing? Should policy makers and stock investors have free access to business results adjusted for inflation? Can such perspectives of stock value be calculated independently of company accountants? There are a host of issues that stem from introducing Management Accounting principles in to the public domain of China business.

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