ACCOUNTING practices that differ from international standards and insufficient market information have cast doubts on the accuracy of the valuation of Chinese state assets, according to an auditor. Dorman Kwan Siu-man, audit manager of Coopers & Lybrand, said asset valuations compiled by agents in Hong Kong and China often differed because they were done in two distinct methods. While surveyors, not accountants, were responsible for fixed assets valuation in Hong Kong and overseas, only designated accounting firms in China were allowed to conduct asset valuations for the state sector, he said. 'For reports required by overseas [companies] such as for B-share and H-share listings, we usually ask surveyors to conduct the fixed assets valuation for us,' Mr Kwan said. 'But for valuation reports required by the Chinese Government, only designated mainland accounting firms are allowed to do the job,' he said. Coopers' joint venture in China could also conduct asset valuation because its Chinese partner had been granted a permit, he said. But he refused to comment on whether mainland accountants were equipped for the dual role of accounting and conducting valuations. 'There are strict controls on which institutions are allowed to conduct asset valuations. I don't know whether there are [such controls] on individuals who take up the task,' Mr Kwan said. Distinctions between the valuation reports conducted by Hong Kong surveyors and mainland accounting firms were so great that sometimes accounting firms in Hong Kong and their Chinese counterparts had to sit down and figure out a closer result, he said. 'Differences can be quite large as they are using totally different methods of calculation. Of course, it is not good if the valuation reports compiled by [agents in] China and Hong Kong are different.' Asset valuation is required by the Chinese Government if a state firm is to convert into a shareholding firm or to list overseas. But an additional report is sometimes compiled by surveyors in Hong Kong to study the feasibility of B-share or H-share listings. Insufficient market information also makes asset valuation more difficult. 'Market information is not as easy to get as in Hong Kong. If you are talking about property prices in Shanghai, Shanghai is so large and prices vary,' Mr Kwan said. However, he stressed it was difficult to judge the accuracy of a valuation report because assets valuation was always subjective. 'There will be differences even if the valuation is done by two surveyors in Hong Kong,' he said. 'As I am an auditor, not a surveyor, I can only read the asset valuation report as a layman and I have to accept the figures if they look all right.' It was crucial for those who conduct asset valuations to clearly state the method of calculation in their reports, and an accountant should also state the source of the valuation report in the balance sheets or other documents, he said. The Chinese Government has vowed to curb asset losses of the state sector by tightening accounting rules and launching a nationwide calculation campaign for state assets.
