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Analysis of the new enterprise accounting standards, net assets per share of the company "false" from "Financial Instruments Recognition and Measurement Guidelines

Author: YeFeng From: www.yourpaper.net Posted: 2009-12-02 04:22:49 Read:
[Abstract] New Enterprise Accounting Standards No. 22, "the recognition and measurement of financial instruments, guidelines on investment classification and measurement of its rational aspect. The guidelines, however, there are also some drawbacks. Contradiction between randomness defined by the method of classification of financial assets are measured uncertainty and financial assets. This has resulted in important financial indicators calculated in accordance with the guidelines provided corporate financial statements - Net assets per share "false".
[Keywords] trading financial assets available-for-sale financial assets, net assets per share fair value of the capital surplus

The analysis of the net assets per share on the stock market, one of the investment used to determine the fundamental analysis has a broad application base and proven. However, the new corporate accounting standards, the vagueness of some of the provisions in the recognition and measurement of financial instruments, guidelines, however, created the relative net assets per share "false", brought adverse impact on the investment decisions of the investors.
First, the basic problem
According to the definition of Finance, the net assets per share = Total equity shares outstanding number of shares. Assume that in a certain period of time, not to increase their investment, allotment of increasing the behavior of the stock shares, the number of the outstanding shares of stock can be seen as a constant. In this case, the net assets per share and total shareholders' equity is a positive correlation. According to the new corporate accounting standards issued by the Ministry of Finance, the equity invested capital, capital surplus and retained earnings. Including the recognition and measurement method, investment in capital and retained earnings are relatively OK. However, the new corporate accounting standards "provisions in the guidelines of the recognition and measurement of financial instruments gave the recognition and measurement of capital surplus brought changes to some extent manipulated, resulting in the company's per share net relative asset "false."
Second, the theoretical basis
No. 22 "Financial Instruments Recognition and Measurement" provisions under the new corporate accounting standards issued by the Ministry of Finance, the financial assets should be in the initial recognition, divided into four categories: (1) at fair value through profit or loss Financial assets include trading financial assets and designated as at fair value through profit or loss Financial assets and their changes; (2) held-to-maturity investments; (3) loans and receivables; (4) Available sale financial assets.
The discrepancy is not large, the provisions of the old and new guidelines for the two of held-to-maturity investments and loans and receivables. Deserves a high degree of attention to trading financial assets and available-for-sale financial assets, accounting recognition and measurement.
"The recognition and measurement of financial instruments, the guidelines make the classification of the two assets defined as follows:
Trading financial assets mainly refers to financial assets held by the enterprise of selling in the near future, including the enterprise to make the difference for the purpose, purchased from the secondary market of stocks, bonds and funds. Available-for-sale financial assets, including business acquired in an active market quotes of stocks, bonds and funds, not classified as financial assets at fair value through profit or loss, held-to-maturity investments and other financial assets, can be classified as such.
Recognition and measurement of financial instruments, the guidelines of these two financial assets denominated measured at fair value, but using different accounting methods in accounting, pricing aspects in the initial measurement of the accounting system: initial trading financial assets measurement should be made when the fair value initially recognized amount of the related transaction costs are included in the profit or loss in the event; while available-for-sale financial assets, as the initial fair value of financial assets and costs associated with the acquisition and recognized amount. Subsequent measurement: trading financial assets during the financial assets acquired interest or cash dividends is recognized as investment income, the financial assets are measured at fair value at the balance sheet date, changes in the difference between the fair value and the carrying value of the included changes in fair values, at the disposal of the financial asset, its fair value and the initial recorded changes in the difference between the amount of the profit or loss transferred to profit or loss; while available-for-sale financial assets during the financial assets of the acquired interest or cash dividends is also recognized as an investment revenue in the balance sheet date, the financial assets are measured at fair value, changes in the difference between the fair value and the carrying value into capital reserves, only dispose of the financial assets, the capital reserve transferred to profit or loss before final confirmation investment income. Because analysis
New Enterprise Accounting Standards "Financial Instruments Recognition and measurement guidelines specified in the above theoretical basis of the criteria resulting in corporate net assets per share" false "can mainly be attributed to two reasons combined effects . The first point is the two different financial assets have different accounting treatment; second point is that two different financial assets randomness.
(A) changes in the fair value of the different accounting treatment
Blend for trading assets specific accounting entries
(1) When the premium of the financial assets that the fair value of> book value when
By: trading financial assets - fair value changes
Credit: changes in fair values ??
(2) When the decline in value of financial assets at fair value By: changes in fair values ??
Credit: trading financial assets - fair value changes
In other words, the change in fair value of trading financial assets credited to the account through trading financial assets Profit asset classes, has no direct impact on the net assets per share.
For available-for-sale financial assets, the specific accounting entries
(1) When the premium of the financial assets that the fair value of> book value when
By: available-for-sale financial assets - change in fair value
Credit: Capital reserve - other capital surplus
(2) When the decline in value of financial assets at fair value By: Capital reserve - other capital surplus
Credit: available-for-sale financial assets - change in fair value
In other words, the change in fair value of available-for-sale financial assets credited to the shareholders' equity through capital surplus - Other capital surplus account, has a direct impact on the net assets per share.
(B) Financial instruments recognized arbitrariness
Although the criteria for the two assets make a distinction and defined in the text, but this definition is very vague, making arbitrary Recognition of financial instruments in the actual operation. From trading financial assets "mainly to the near future sale or repurchase of the definition of" to initial recognition are designated as available for sale are non-derivative financial assets "available-for-sale financial assets can be seen to confirm arbitrariness, as we all know, there is no such time limit the issuance of stock in the securities as financial assets held for trading or available for sale financial assets depends on the wishes of the enterprise, the wishes of the enterprise is ready to sell them in the near term or repurchase a stock, but because of the stock The uncertainty of the market up and down, the enterprise from the point of view of profit may be unable to sell in the near future or repurchase. Practice has proved that the stock is stuck with long-term phenomenon often, some holding time or even as long as several years. Therefore, in the actual market, according to the provisions of the current enterprise accounting standards, it is difficult to accurately define which financial assets for trading financial assets and which financial assets as available for sale.
Summing up the discussion, the paper argues that the company's net assets per share have a certain "false" is caused by the "Financial Instruments Recognition and measurement guidelines defects. This deficiency is reflected in the recognition and measurement of financial instruments "standard requires two different assets have different measurement methods in the fair value changes have a significant impact, measured at two different measurement method will be the company's capital surplus. However, the guidelines define both assets they appear fuzzy. This is by different financial assets in the trading of financial assets and available-for-sale financial assets between meet transformed measurement provides a space to adjust the company's capital surplus, and eventually the company's net assets per share has been relatively "false".

References:
[1] Ministry of Finance Accounting Standards for Business Enterprises No. 22 - Financial Instruments Recognition and measurement of .2006
[2] 2008 registered accounting unified national exam resource materials - Accounting. Economic Science Press.
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