Analysis Of New Regulations For Accounting Treatment Of Assets Sold Between Related Parties

In order to standardize the accounting treatment of the assets sold between listed companies and related parties and to truly reflect the financial situation and operating results of the listed companies, the Ministry of Finance formulated and promulgated the Interim Provisions on the accounting treatment of the assets sold between related parties in December 21, 2001 (hereinafter referred to as the "Regulations"), requiring the listed companies to carry out their implementation from the date of promulgation.

In view of the background and significance of the regulations, in view of the increasing supervision by government departments on listed companies, many listed companies have used some loopholes in the legal and accounting systems to carry out some related pactions aimed at manipulating profits for the purpose of raising funds, avoiding ST or PT processing, etc.

If these related pactions take market price as the pricing principle of pactions, they will not have an abnormal impact on both sides of the paction, which is also a normal business behavior.

However, if the paction price is far from the market price, it will be unfair to create a particularly high profit margin.

Therefore, the essence of such affiliated pactions is the manipulation of profits under the form of normal business. The result is poor accounting information, damaging the legitimate rights and interests of investors and creditors and disrupting the order of capital market.

In 2000, for example, in April 21, 2001, 949 of the 1018 A share listed companies published by the Shanghai and Shenzhen two cities reported 93.2% related pactions, accounting for 93.2% of the total, of which 214 were related pactions in capital management activities, accounting for 21% of the total.

Large shareholders or other related parties reorganize the listed companies through the purchase of claims, gift assets, purchase of non-performing assets, and asset replacement, contributing about 20% of the profits of listed companies.

ST, in 2000, realized a net profit of 271 million 470 thousand yuan, earning 0.87 yuan per share. It not only bid farewell to ST at one stroke, but also made the first two blue chips in two cities with a net asset yield of up to 79.2%.

Warburg's "secret weapon" is the sale of bad assets. The net assets of its subsidiary companies are -27028 million yuan. After evaluation, they are -27806 million yuan, while Warburg sells them to their first and 22 largest shareholders at a price of 20 yuan, which not only unloads heavy burden, but also gains about 270 million yuan profit.

The "regulation" pointed out that if there is no conclusive evidence that the paction price is fair, a portion of the unfair paction price shall not be recognized as the current profit and should be treated as a capital surplus.

Therefore, the release of the regulations is an effective way to control profit manipulation through related party pactions. It is an effective supplement to the accounting standards for enterprises - disclosure of related party relations and pactions. It implements the principle of "substance is more important than form", and it has important practical significance for truly reflecting the economic nature of pactions between companies and related parties, improving the quality of accounting information of listed companies, promoting intermediaries to carry out social audit more effectively, protecting the legitimate rights and interests of investors, promoting the healthy development of capital markets and safeguarding the "three principles".

The influence of "two" and "Regulations" on listed companies has been extensively investigated in the past 2001.

New debt restructuring guidelines have been implemented since January 1, 2001.

Recently, the SFC also announced the notice on several major issues concerning the purchase, sale and replacement of assets of listed companies.

Nevertheless, the system still has many shortcomings.

Take the ST saddle worker as an example, in 2001, the company turned the deficit way by pferring the 260 thousand and 800 square meters of land to the red dragging group at the price of 426 yuan per square meter, thereby gaining a profit of 90 million yuan.

But the land is saddle and worker just got the price from 42.6 yuan / square meter from the Anshan Land Authority.

The majority of investors expressed great doubts about their fairness.

The implementation of the new accounting rules for related pactions will have a greater impact on the three kinds of companies, especially some T companies will be dealt a fatal blow.

One is the company that intends to refinance in 2002. According to the relevant provisions of the company law and the securities law, whether issuing convertible bonds, issuing shares or issuing new shares, there are certain requirements for the continuity of the company's earnings, so that the refinancing qualification that was originally expected to be restructured through assets is likely to be difficult to fulfill because of the failure to fully confirm profits.

The second category is a company with a record of losses in the previous year. The introduction of the regulations will result in a loss of two companies, and the ST lineup may increase.

The third category is the recent "T" companies that are prepared to reverse the fate of the delisting through asset restructuring. Most of these companies are in progress or are preparing for related pactions in order to turn around the losses, and their efforts may be wasted.

Three, some problems to be clarified in the regulations, 1, the distinction between "abnormal sales and other sales" and "normal merchandise sales".

According to the regulations, "sales of abnormal commodities and other sales refer to the sale and pfer of goods other than the sale of normal commodities, and the sale of other assets."

Considering that other assets refer to fixed assets, intangible assets and so on, what does the sale of abnormal commodities refer to? What is the commodity that the associated party does not need, the defective quality or other circumstances? It is not known that the amount of capital recognized by the capital surplus in accounting treatment is different from normal sales and abnormal sales, and the amount of profits determined is also affected.

Therefore, the profits determined by listed companies' annual reports also have flexibility.

2, the definition of "related party".

The last paragraph of the "Regulations" indicates that the "accounting standards for business enterprises - disclosure of related party relations and pactions" issued in 1997 is the main basis for judging the parties concerned.

However, according to the provisions of the accounting standards, the scope of monitoring referred to in the regulation may have different understandings in the execution process.

The reason is that the definition of "related party" has broken through the scope of accounting standards recently.

Taking the latest stock listing rules of the two exchanges as an example, the concept of "potential associates" is clearly proposed outside the "associated legal person" and "associated natural person", that is, the signing agreement with a listed company is also a affiliated party.

In addition, the notice issued by the securities and Futures Commission on issues concerning major purchase, sale and replacement of assets of listed companies also has new provisions on defining related party pactions: "if the trading partner has been directly related to the shareholding of the listed company with the controlling shareholder of the listed company, or because of the tacit understanding of the Directors recommended to the listed company, it may lead to changes in the company's actual control rights" and also in the category of related party pactions.

It is obvious that the scope of related party pactions has been expanded with the criterion of whether the actual control rights are pferred.

Therefore, the difference between the definition standards of related parties may lead to the different scope of the regulation's effect on listed companies.

In addition, the SFC's notice came into effect in January 1, 2002 and has a time lag with the "Regulations" of the Ministry of finance.

Therefore, how to define the nature of pactions during this period is also a difficult problem.

3, the understanding of "paction completion".

The "Regulations" adopted the "future application" method for accounting pactions of related party pactions. Since its effective date is December 21, 2001, the related pactions have been completed before, and the accounting treatment is still in line with the original guidelines, and the paction has not yet been completed, and will be accounted for in accordance with the relevant provisions of the provisions.

However, how do we understand "paction completion"? Is it a necessary and sufficient condition for the pfer of ownership or business registration as a "paction completion", or on the basis of money to account, or other criteria? How does this standard ensure its objective authenticity in the execution process?

The author believes that according to the general provisions of civil law, the "registration and pfer" shall be the sole criterion for the completion of pactions, that is, the pfer of accounts before December 21, 2001 will be accounted for by the original accounting principles and vice versa according to the new regulations.

4, the definition of the nature of the details of the related party paction price difference.

In the first paragraph, the regulations stipulate that "in the capital reserve", separate account is set up for the detailed account of the related party paction price difference. This part of the difference can not be used to increase capital or make up for losses.

Considering that there is a precedent for a listed company to make up for losses through capital accumulation, it is not difficult to understand that the detailed provisions do not make up for losses. The purpose is to avoid the old way of using listed companies to manipulate profits by using related party pactions because of incomplete rules.

The author believes that the provisions of the detailed provisions can not be converted to capital, but the related party paction price difference is not fair, but it is determined to be controlled by the company. If its cash assets are guaranteed after its capital accumulation, it is not comparable to the general capital reserve project.

Moreover, if the capital surplus formed by the linked difference price increases capital, the company's financial position, operating results and cash flows will be affected little by the change in the structure of shareholders' equity, and the impact on investors and creditors will not be great.

Conversely, if this part of the capital surplus can not be converted to capital, the detailed subject will be kept on the books forever, thus contrary to the original intention and the nature of economic activities.