Thursday, July 22, 2010

New accounting standards: fair value is bright spot

February 2006, the Ministry of Finance issued a new accounting standard that requires the January 1, 2007 implementation of listed companies since. While some accounting with Chinese characteristics in the new guidelines be retained, such as the relevant provisions of the related party transactions, etc., but the biggest change is the introduction of a comprehensive fair value measurement attribute, and give the company greater autonomy to adjust its accounting policies. The introduction of fair value is the most arrests the eye of a change, attract a lot of industry discussion and analysis, but whether it can better reflect the accounting information for investment decision-making utility, the industry had agreed with the question of the two different voices. Do not drive controversy, I think more investors interested in the host is to in-depth understanding of what is fair value? It is how the new criteria set out? Its investors what impact the decision-making?

Fair value method, is the historical cost, replacement cost method, net realizable value method and the present value of the current law system of accounting standards the most important one of asset valuation methods. Under the fair value of assets and liabilities in accordance with the fair trading, familiar with the situation in the transaction or the parties to exchange their assets measured at the amount of debt settlement.涓轰簡闃叉鍏厑浠峰?琚互鐢ㄨ?鍑虹幇鍒╂鼎鎿嶇旱锛屽噯鍒欎弗鏍艰鑼冧簡杩愮敤鍏厑浠峰?鐨勫墠鎻愭潯浠讹紝鍗冲叕鍏佷环鍊煎簲褰撹兘澶熷彲闈犺閲忋? An accounting for each element, the basic guidelines are, without exception, stressing that only in conditions can be identified reliably measured. New financial instruments accounting standards, investment real estate, non-business combination under common control, debt restructuring and non-monetary transactions and adopt a fair value, the Ministry of Finance that the fair value of these areas is easy to obtain, less subjective judgments.

First, the fair value method of investment real estate

"Accounting Standards for Enterprises No. 3 - Investment Real Estate" suggested that there is conclusive evidence that the fair value of investment real estate can be made continuous and reliable conditions, it can be used on the fair value of investment real estate model for subsequent measurement. Using the fair value model, it shall meet the following conditions: (1) investment real estate real estate where there is active trading market; (b) from the real estate market enterprises to achieve the same or similar real estate on the market price and other relevant information, thus the fair value of investment real estate to make a reasonable estimate.

Measured using the fair value model, not investment real estate depreciation or amortization, should be the balance sheet date the fair value of investment real estate based on adjusted book value, fair value and book value of the difference between the original profit and loss. Way to determine fair value: market reference price, or discounted cash flow value.

Investment real estate business measurement model has been established, shall not be changed. Fair value from the cost model to model, as changes in accounting policies should be based on "Accounting Standards for Enterprises No. 28 - Accounting policies, changes in accounting estimates and correction of errors," the relevant provisions of the processing.宸查噰鐢ㄥ叕鍏佷环鍊兼ā寮忚閲忕殑鎶曡祫鎬ф埧鍦颁骇锛屼笉寰椾粠鍏厑浠峰?妯″紡杞负鎴愭湰妯″紡銆?br />
Previously listed companies are included in fixed assets investment real estate, market value changes are not included in the profit and loss, we can not find in the report changes in the scene. In recent years, rapid expansion of the real estate market and the industry is also expected to rally in the future there will be a gradual process of rising, this listed company once the fair value method to measure its investment properties acquired in earlier years, will greatly enhance the its net assets and net current, means that listed companies in the premium real estate investment will be fully reflected in the book on the huge profits to emerge in the book. The future to reflect the fair value of net assets of the company book its reference value greatly.

At the same time, many people worry about the fair value of conservative attitudes easily lead to manipulation of profits, the fair value of the tendency to resist, but with the continued development of China's real estate market, house sales information online public, relative to other assets, investment The fair value of real estate is easily accessible. Needs to be emphasized that the huge corporate profits also means the emergence of a corresponding amount of tax paid up, although not a new tax policy down, but not even a revalued amount, tax, depreciation tax credit function is gone. The new accounting standards on the company's assets and provides a new model, but whether the company used this model to use or how different, be studied in depth.

Second, the fair value method on non-monetary exchange of assets

"Enterprise Accounting Standards No. 7 - the exchange of non-monetary assets," the provisions of the exchange of non-monetary assets meet the following two conditions should be fair value and related taxes to be paid as the cost of assets transferred, the fair value and for the difference between the book value of assets, profit or loss: first, the exchange has commercial substance; second, or exchange of assets for the fair value of the assets can be reliably measured. If these two conditions can not meet, it continues to change the book value of assets as a buy in cost, uncertain loss. The provision specifically pointed out that if there is affiliated transaction parties, and lead to the exchange does not have commercial substance.

China's current guidelines for non-monetary transactions require enterprises to non-monetary transactions occurring in the book value of the transaction are recorded only in the case of receipt of the premium in proportion to revenue recognition, fair value is not used. The revised criteria for the introduction of non-monetary transactions at fair value and the assessed valuation basis as stated, if there is no active market, trading of non-associated parties in the absence of third party intervention consultation valued, can be considered fair value. Non-monetary assets exchanged, using the fair value measurement. The resulting outcome is that this swap will generate profits. The book value of previous calculation method used, the basic non-profit. This real estate investment companies are bred a certain opportunity, because of the possible revaluation of property value each year, and its book value to reflect market value, will direct a substantial increase in net assets per share and reduce book value. In addition, due to depreciation disappear, the corresponding increase corporate profits will effectively enhance the company's stock valuation.

According to the agency in 2004 non-monetary transactions of listed companies the size of 34.0 billion measure, the listed companies to increase in 2006 earnings due to new guidelines about 7.5 billion.

Third, the fair value method of debt restructuring

New accounting standards, details the possible loss (based on practice, mainly profits) debt restructuring of the four situations: first, the debtor should be the book value of debt to be restructured and the actual cash difference between the recognized debt restructuring profits through profit and loss; second, non-cash assets, the debtor to repay debts, the debtor shall be the book value of debt restructuring and transfer of non-cash difference between the fair value of assets, are recognized as gains of debt restructuring through profit and loss ; Third, when a debt into capital, debt restructuring and the book value of shares in the fair value of the difference between the total amount, but also can produce profit and loss; Fourth, modification of other terms of a debt, making debt restructuring recorded before and after the difference between the value of can also generate income.

The new guidelines for debt restructuring Debt Restructuring operating income included income, debt bondage for real business, the introduction of fair value as the measurement attribute. Prior accounting standards is a result of the original concession by the creditors the debtor to repay the debt waiver or less included in capital surplus. If the bonded goods are no active trading market can be assessed to determine the fair value of non-related parties if the two sides, both sides of the consultation can also be seen as fair value pricing. Under the new regulations, a number of insolvent companies, once all or part of the debt waiver, the income will be directly reflected in the current period income statement, may greatly enhance its earnings per share level. According to agency estimates, because of this provision, companies can increase earnings in 2006 of about 6.3 billion.

The new accounting standards on debt restructuring provisions, the basic back in 1998, the situation in China, and the relevant provisions of the United States is now roughly the same. Listed companies may therefore be a huge profit.瀵逛綔涓哄?鍔′汉鐨勪笂甯傚叕鍙歌?瑷?紝鏂扮殑鍊哄姟閲嶇粍鍑嗗垯鎰忓懗鐫?紝涓?棪鍊烘潈浜鸿姝ワ紝涓婂競鍏徃鑾峰緱鐨勫埄鐩婂皢鐩存帴璁″叆褰撴湡鏀剁泭锛岃繘鍏ュ埄娑﹁〃銆?Insolvent on the Shanghai and Shenzhen stock listed companies, once the debt is wholly or partly exempt, may significantly increase its earnings per share. Listed companies in the debt waiver, the state-owned (Holdings) concern the role played by banks.

Amended in 2001, "Debt Restructuring" criteria, eliminated the use of fair value, to avoid re-gain the income statement, balance sheet directly into the capital reserve project in 2001, amendments to standards, the objective of fair value to avoid some listed companies to manipulate profits by the fair value, in order to achieve its loss or had not the purpose of continuous losses, but after all, through the manipulation of the fair value of the profits (if they can enter the income statement it) is a non-recurring profit and loss, through change the listed companies net profit, earnings per share and net assets per share calculation indicators, such as its net profit and net change by deducting non-recurring gains and losses based on the lower of the two monitoring indicators, listed companies there is no positive to operating profit.

Fourth, the fair value method of merger

Currently most of China's business combination business combination under common control, which may not be combined merging parties and that both a voluntary transactions, mergers on prices is not the result of bargaining between the two sides do not represent fair value, and therefore book value accounting treatment as a basis to avoid the profit manipulation. Under common control business combinations (including the merger of merger and new) can have the bargaining, the result of voluntary transactions between the two sides, so there are two sides recognized the fair value and recognition to buy goodwill. Impairment of goodwill impairment issue separate guidelines to be provided, only the impairment is not amortized.

In the merger, the new guidelines for the same control and the merger under common control, respectively, to "equity method" and the "purchase method" of two accounting. Of the same as if a business combination under the control of a company to buy another business transaction, in accordance with the purchase method of accounting, in accordance with the fair value of recognized assets acquired and liabilities. At the acquisition date, the purchaser is greater than the combined cost of the recognized identifiable assets, liabilities, net fair value of the difference, is recognized as goodwill. Enterprises should be the end of each accounting, goodwill impairment test calculation to determine the impairment amount. Goodwill impairment test, should be included in the current profit and loss. At the acquisition date, less than the cost of the purchaser to confirm the merger of the identifiable assets, liabilities, net fair value of the difference, as negative goodwill. Be achieved in the purchase of the identifiable assets, liabilities, after review of the fair value through profit and loss. Occur during the merger of the associated costs, should occur through profit and loss. Accounting period, of the goodwill impairment test, in accordance with the test to confirm the amount shown in the balance sheet, the difference between profit or loss, reducing retained earnings. For negative goodwill, after reassessment, is recognized in profit or loss, while increasing retained earnings.

Businesses under common control, a combination of fair value, a more scientific and rational, while the introduction of the goodwill concept, cancellation of the equity investment difference and changed greatly.

Fifth, financial instruments at fair value method of recognition and measurement

The new investment guidelines, revised classification of investment is adjusted. Adjusted investment categories are: trading securities investments, held to maturity investments and equity investments, including investment securities transactions similar to the original short-term securities. Under the "Accounting Standards for Enterprises No. 22 - Financial Instruments Recognition and Measurement" requirement, for trading financial assets are measured at cost when acquired, the end of the financial assets at fair value are subsequently measured at fair value through profit or loss , in accordance with this provision, short-term stock investment companies, and will no longer use the original cost or market method are measured by market value method will be pure.

Original, listed companies, securities investment, such as lower than the cost price must be provision for the impairment, but if the cost of high prices than market value, but the company did not throw gains, unrealized profit and not profit or loss, but the new guidelines is making a portfolio investment can also become a net book profit. Short, short-term investments in securities of listed companies, in accordance with current accounting standards, as long as the reporting period does not sell, even if the book would also be impossible to achieve a profit for the current income. The new guidelines are stated at fair value, the carrying amount of profit can be directly included in the current income. Note that this does not mean trading short-term securities investment securities, it does not mean that short-term investment in large enterprises have more opportunities.

The new guidelines also require that all derivative financial instruments measured at fair value, and move the sheet from the sheet to reflect. This requires the listed banks and securities firms to the financial statements in order to avoid an excessive volatility, will be considered business use of the table Nei derivative financial instruments for risk management actions have a significant impact, as well as derivative financial instruments on the statements.

The new guidelines reflect the fair value of the principles used with caution, but at fair value with the leading international accounting standards, there are still some differences. New accounting standards take into account the operational and other reasons, draws on international accounting standards in determining the fair value method, shows the four alternative methods, namely, the existence of an active market for the same or similar geographic location, different geographical there is no active market position or other similar transaction prices of real estate can be the light of the latest real estate similar to the current market price, also can use the estimated future cash flows method to determine the present value.

After the implementation of fair value measurement into account, cash flow reflects the entrepreneurial skills to become the most important indicator will be more attention. Reflect the fair value of the company's M & A, but the good assets can generate good returns for investors the same concern. Fluctuations in fair value included in current profit or loss, means that corporate profits will be huge volatility, reduce the significance of evaluation.鐪熸鑳藉鍙嶆槧浼佷笟鐩堝埄鎯呭喌锛屼互鍙婃寔缁粡钀ヨ兘鍔涚殑鎸囨爣鏄粡钀ユ椿鍔ㄧ幇閲戞祦銆?The new guidelines strengthen the community for investors and public decision-making accounting information useful to new ideas and achieved the standard with international practice, the first relatively complete construction of the organic unity of system, we hope to see from the administration through a series of law enforcement, industry self-regulation, public opinion, the people involved in the combination of market pressure monitoring system, so that accounting standards can be most effective for achieving the financial health of each company.


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