1、The mew accounting system in the Czech Republic Rudolf Schroll Vysoka skola ekonomicka v Praze Abstract The purpose of the paper is threefold. First, to provide an assessment of the accounting system operated in Czechosolovakia during the period of the so-called centrally planned economy (i.e. the c
2、ommand economy).Second, to provide a characterization of the new accounting system introduced in 1993. third, to provide some indication of developing tendencies likely to become significant in the future. ACCOUNTING IN THE CENTRALLY PLANNED ECONOMY It is important to understand that the objectives
3、of accounting, especially of financial accounting ,in the centrally planned economy are fundamentally different from the objectives of accounting in the market economy. These differences have implication for the direction and rate of accounting change during the transition to the market economy. The
4、 specific nature of accounting in the centrally planned economy may be examined from four aspects. First, accounting was not ,in principle, an instrument at the disposal of the management of an enterprise or other entity(e.g. institution, organization).On the contrary, accounting was required to ful
5、fil the needs of the central institution of the planned economy, such as the State Planning Commission Central Statistical Office, Ministry of Finance. The economic ministries(for various branches of the national economy). It was therefore necessary for the accounting system to be centrally directed
6、 and controlled. This was achieved through the introduction of the following measures: a uniform chart of accounts, designed centrally and obligatory for all profit making enterprises and other economic entities. A separate and obligatory chart of accounts was prepared for non-profit seeking entitie
7、s； a detailed accounting methodology, adherence to which was obligatory for all accounting entities. Its preparation was the responsibility of the Ministry of Finance； a uniform system of financial statements intended to serve the needs of the central authorities. These comprised not only the balanc
8、e sheet and the profit and loss account but also from eight to ten supplementary statements dealing with various aspects of an enterprises activities. There were several reporting cycles of differing 1 lengths. For example, the profit and loss account was submitted to the central authorities monthly
9、 whereas the balance sheet was submitted only biannually. The other statements were submitted either quarterly or annually. There was no cash flow statements because the financing of enterprises was no cash flow statement because the financing of enterprises was centralized. The financial statement
10、accorded most importance was the profit and loss account. It was not prepared for the needs of the enterprise but to satisfy the needs of the central authorities through the generation of macroeconomic statistics. In the profit and loss account expenses were classified by elements of cost. Revenues
11、were classified so as to reveal the flows in different sectors of the economy, such as production, trade and transport. The profit and loss account was intended to serve as a basis for the computation of the principle macroeconomic indicators, such as national product, national income and so on. Bec
12、ause of the system of centralized financing the balance sheet was not considered to be an important financial statement. Because of the absence of private ownership in the means of production there was no conception of “owners capital”. The passive (i.e. capital and liabilities) side of the balance
13、sheet had an especially poor information content. The detailed methodology was issued not only for financial accounting but also for cost accounting. The principle of monism (i.e. the unified perception of reality ) was applied strictly. The same result had to be shown in financial accounting and co
14、st accounting. Second, the financial statements were required to provide information for the use of the central authorities in the administration of the planned economy. These financial statements had very limited importance for the management of the enterprise； they were relevant to the functioning
15、 of the centralized system of financing. Features of system were: the monopoly position of the state bank； the absence of bankruptcy(for all practical purposes)； the centrally organized system of price fixing； the vey limited influence of interest. Prices were determined primarily on the basis of co
16、st plus. However, the system of wholesale prices was independent of the system of retail prices. Similarly, the system of foreign trade price was self-contained. 2 Because of the system of centrally determined and controlled prices some enterprises were highly profitable while other enterprises were
17、 operated at a loss. However, the planned losses were almost always automatically covered by a system of subsidies. On the other hand, nearly the entire amount of profit generated by enterprises was withdrawn by the state. As a consequence credits for operating activities were received semi-automati
18、cally. The investment in fixed assets was almost fully controlled by the central authorities. The system of subsidies was used as the basic instrument in the financing of the acquisition of fixed assets. Third, the financial statements, as also the complementary statistical statements, fulfilled a d
19、ual role but the roles were contradictory. The financial statements: 1、 were used as an instrument of control over the fulfillment of the planned targets for the current period； 2、 provided information serving as a basis for fixing the planned targets for the next period. The inherent contradiction
20、between these two purposes is clear. If the planned targets were not fulfilled there would be no bonuses for the management of the enterprise and no increase in the funds for the payment of salaries and the provision of other benefits. To avoid the occurrence of such a situation the accounting and s
21、tatistical data became subjected to manipulation. On the other hand, if the actual performance, in comparison with the plan, was high in the current period the enterprise would receive higher planned targets for the following periods. The adverse consequences for the enterprise, in terms of reduced
22、bonuses and reduced entitlement to other benefits, could be substantial. Therefore there was a tendency to disclose only a close fulfillment of the plan in the financial and statistical statements. Again, the financial and statistical data became subjected to manipulation. The effect of the manipula
23、tion of the content of the accounting records was self-evident. The management of the enterprise could not use the official accounting information. However, realistic data were required by the enterprise management for control and decision making purposes. Enterprise managers created their own personal and private information systems. The situation with respect to auditing, among other things, made possible such a development.
