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COSTANDMANAGEMENTACCOUNTINGINTHEPEOPLESREPUBLICOFCHINAIEXECUTIVESUMMARYTHISREPORTISTHERESULTOFASTUDYUNDERTAKENBYTHEINSTITUTEOFMANAGEMENTACCOUNTANTSIMATOEXAMINECOSTMANAGEMENTPRACTICESANDCOSTINGMETHODOLOGIESINTHEPEOPLESREPUBLICOFCHINACONCLUSIONSTHEADOPTIONOFTHE2006ACCOUNTINGSYSTEMFORBUSINESSENTERPRISESASBESBYTHEPEOPLESREPUBLICOFCHINABRINGSAROUNDSUBSTANTIALCONVERGENCEOFCHINESEACCOUNTINGSTANDARDSWITHINTERNATIONALFINANCIALREPORTINGSTANDARDSIFRSSWITHREGARDTOINTERNALREPORTING,COSTINGISSUESCANARISEFORMDIFFERENCESBETWEENCHINESEANDWESTERNCOMPANIESINTHETYPESOFCOSTSTREATEDASPRODUCTCOSTS,ANDDIFFERENCESINALLOCATINGTHESECOSTSTOPRODUCTSINANAPPROPRIATEMANNERTHEREAREANUMBEROFCOSTITEMSTHATHAVEBEENINAPPROPRIATELYTREATEDINTHEPASTPERCHINESEACCOUNTINGREGULATIONSCHANGESMADEBYTHE2006ACCOUNTINGSYSTEMFORBUSINESSENTERPRISESHAVEBEGUNTOADDRESSTHESEMOSTCHINESECOMPANIESFOLLOWTRADITIONALMETHODSFORALLOCATINGCOSTSTOPRODUCTS,ALTHOUGHTHEUSEOFMOREACCURATECOSTINGTECHNIQUESISEMERGINGTHISSTATEOFCOSTINGPRACTICEISSIMILARTOTHATENCOUNTEREDINTHEWESTIMPROVEMENTINPRACTICESHOULDBEBASEDONACOST/BENEFITANALYSISPERFORMEDONANINDIVIDUALCOMPANYBASISWHILEDIFFERENCESEXISTBETWEENTHECOSTINGPRACTICESOFCHINESECOMPANIESANDTHOSEUSEDBYWESTERNCOMPANIES,ACONVERGENCEOFPRACTICEISINPROCESSPRODUCTCOSTISTHEMOSTIMPORTANTFACTORINDETERMININGPRODUCTPRICINGOTHERFACTORS,ESPECIALLYCOMPETITORPRICING,AREALSOVERYIMPORTANTITCANNOTBECONCLUDEDTHATDIFFERENCESINCOSTINGPRACTICESLEADTOPRODUCTDUMPINGIISTUDYBACKGROUNDOBJECTIVESTHISREPORTISTHERESULTOFASTUDYUNDERTAKENBYTHEINSTITUTEOFMANAGEMENTACCOUNTANTSTHEOBJECTIVESOFTHESTUDYINCLUDEDTHEFOLLOWING1ACOMPARISONOFINTERNATIONALANDCHINESEACCOUNTINGPOLICIES,PROCEDURES,ANDMETHODS2ANEXAMINATIONOFBOTHTHEREGULATIONSCOMPANIESFOLLOWASWELLASTHEACTUALPRACTICESTHEYUNDERTAKEAND3ANEVALUATIONOFTHEEXTENTTOWHICHCHINESECOSTMANAGEMENTSYSTEMSAREINFLUENCEDBYOPENMARKETECONOMYPRACTICESVERSUSMOREPLANNEDECONOMYPRACTICESONEMOTIVATIONFORTHISSTUDYWASTODETERMINEWHETHERCHINESECOSTINGPRACTICESCONTRIBUTETOPRODUCTDUMPINGBYCHINESECOMPANIESINORDERFORTHISTOBETHECASE,SEVERALCONDITIONSWOULDNEEDTOEXISTTHESEINCLUDETHEFOLLOWINGPRODUCTCOSTSAREAMAJORFACTORINTHEDETERMINATIONOFPRODUCTSELLINGPRICESBYCHINESECOMPANIESTHECOSTINGPRACTICESUSEDBYCHINESECOMPANIESARESUCHTHATPRODUCTCOSTSARENOTACCURATELYDETERMINEDWENOTETHATTHETERM“ACCURACY“ISRELATIVEITCANBEDETERMINEDRELATIVETOCHINESEREGULATIONS,PREVALENTWESTERNPRACTICES,ORBASICCOSTACCOUNTINGPRINCIPLESANDTHEMEANSBYWHICHPRICINGDECISIONSAREREACHEDISSUCHTHATDISTORTIONOFPRODUCTCOSTSWILLRESULTINTHEDETERMINATIONOFSELLINGPRICESTHATAREMATERIALLYDIFFERENTTHANTHOSETHATWOULDHAVEBEENDETERMINEDHAD“ACCURATE“COSTSBEENUSEDPROVINGTHEEXISTENCEORLACKTHEREOFOFALLOFTHESECONDITIONSISNOTANEASYTASKINTHISSTUDY,THEREFORE,WEEXPLORETHEIMPORTANCEOFPRODUCTCOSTSINCHINESEFIRMSPRICINGDECISIONSEXAMINETHECOSTINGPRACTICESCURRENTLYEMPLOYEDBYCHINESECOMPANIESANDCOMPARETHESETOTHEVARIOUSSTANDARDSINDICATEDABOVEDISCUSSTHEEVOLUTIONOFCHINESEACCOUNTINGREGULATIONSANDTHEIRIMPACTONCOSTINGPRACTICESANDREACH,TOTHEEXTENTPOSSIBLE,ACONCLUSIONREGARDINGTHEIMPACTOFCHINESECOSTINGPRACTICESONPRODUCTCOSTINGINORDERTOACCOMPLISHTHESEOBJECTIVES,THEINSTITUTEOFMANAGEMENTACCOUNTANTSCONDUCTEDARESEARCHSTUDYINTWOPHASESINTHEFIRSTPHASE,ANINSTITUTEOFMANAGEMENTACCOUNTANTSRESEARCHTEAMVISITEDAVARIETYOFCHINESEENTERPRISESTHISTEAMCONSISTEDOFDRRAEFLAWSON,INSTITUTEOFMANAGEMENTACCOUNTANTSDIRECTOROFRESEARCHANDPROFESSORINRESIDENCEPROFESSORYANGJILIANG,HONGKONGUNIVERSITYOFSCIENCEANDTECHNOLOGYRETIREDMRDINGPINZHUN,INSTITUTEOFMANAGEMENTACCOUNTANTSSENIORCHINAADVISOR,FORMERLYOFTHEPEOPLESREPUBLICOFCHINAMINISTRYOFFINANCEANDSECRETARYGENERALOFTHECHINESEINSTITUTEOFCERTIFIEDPUBLICACCOUNTANTSCICPASANDPROFESSORGARYBIDDLE,FORMERLYCHAIRPROFESSORHONGKONGUNIVERSITYOFSCIENCEANDTECHNOLOGYNOWDEAN,FACULTYOFBUSINESSANDECONOMICS,UNIVERSITYOFHONGKONGTHEFIRMSVISITEDINCLUDEDSTATEOWNEDANDPRIVATELYOWNEDENTERPRISES,LARGEANDMIDDLESIZEDENTERPRISES,ANDENTERPRISESFROMADIVERSESETOFINDUSTRIES,INCLUDINGTHOSESUBJECTTODUMPINGDISPUTESTHEFIRMVISITSPROVIDEDAWEALTHOFINFORMATIONREGARDINGTHECOSTMANAGEMENTPRACTICESUSEDBYTHEFIRMSVISITED,ANDADDITIONALLYPROVIDEDTHEBASISFORTHEDEVELOPMENTANDREFINEMENTOFAMAILSURVEYINSTRUMENTEXAMININGCOSTINGPRACTICESUTILIZEDBYAMUCHLARGERSAMPLEOFCHINESECOMPANIESPEOPLESREPUBLICOFCHINAACCOUNTINGPRACTICESFOLLOWINGTHEESTABLISHMENTOFTHEPEOPLESREPUBLICOFCHINAIN1949,THECHINESEGOVERNMENTDEVELOPEDSEVERALMANAGEMENTSYSTEMSNECESSARYUNDERAPLANNEDECONOMYTHETHREEMOSTIMPORTANTTASKSINTHISREGARDWEREDEVELOPINGTHEECONOMICACCOUNTABILITYSYSTEM,WHICHDEFINEDTHEECONOMICRELATIONSHIPBETWEENTHESTATEANDTHEENTERPRISEIMPLEMENTINGACOMPREHENSIVEANNUALPLANNINGSYSTEM,INCLUDINGTHECOSTPLANNING/BUDGETINGSYSTEMANDESTABLISHINGTHENORMMANAGEMENTSYSTEMFORREALIZINGTHETECHNOECONOMICTARGETSOFANENTERPRISEPARTOFTHISINFRASTRUCTUREINVOLVEDTHEREQUIREMENTTHATCOMPANIESFOLLOWAUNIFORMACCOUNTINGSYSTEMTHATWASDESIGNEDBYTHEACCOUNTINGREGULATORYORAFFAIRSDEPARTMENTOFTHEMINISTRYOFFINANCEMOFBECAUSEOFTHEDIFFERENCEBETWEENPLANNEDANDMARKETECONOMIES,CHINESEACCOUNTINGSTANDARDSEMPLOYEDUNDERTHEPLANNEDECONOMYWERELARGELYUNSUITABLEFORMA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