Shenzhen Stock Exchange Accounting Supervision Trends 2022 Issue 1 (Total Issue 1)
Shenzhen Stock Exchange Accounting Supervision Department May 6, 2022
Editor's Note: In order to further implement the requirements for improving the quality of listed companies, further pressure To implement the "gatekeeper" responsibilities of intermediaries, we sorted out the common problems existing in the accounting and audit supervision of Shenzhen Stock Exchange companies and formed the "Shenzhen Stock Exchange Accounting Supervision Dynamics" (hereinafter referred to as the "Accounting Supervision Dynamics"). "Accounting Supervision Updates" aims to inform accounting firms of their supervision status, enhance communication with the industry, jointly promote the formation of a good market ecology conducive to the implementation of a comprehensive registration system, and improve the quality of financial information disclosure of Shenzhen-listed companies. "Accounting Supervision Trends" has three topics: "Shenzhen Municipal Accounting Audit Supervision Newsletter", "Accounting Policy Information" and "Typical Case Studies", and will be optimized and adjusted according to the actual situation. Among them, the "Shenzhen Stock Exchange Accounting and Audit Supervision Newsletter" is mainly to convey to the industry the recent key concerns of our accounting and audit supervision; the "Accounting Policy Information" aims to share relevant information from domestic and foreign standard-setting agencies, securities regulatory agencies and self-regulatory regulatory associations. The latest policies and research trends of the organization; "Typical Case Studies" mainly publishes relevant case consulting results discussed and formed by the Accounting Advisory Committee of the Firm (hereinafter referred to as the Accounting Advisory Committee). The members of the Accounting Advisory Committee of the Firm are from relevant ministries and commissions, securities regulatory authorities Institutions, industry associations, universities, auditing and evaluation institutions, securities companies, investment institutions, listed companies and other units have high theoretical levels and rich practical experience. "Accounting Supervision Trends" does not constitute an interpretation of the current " Enterprise Accounting Standards ". It is only for internal communication of the accounting firm and is not allowed to be circulated externally. If you have any questions, please consult the Accounting Supervision Department of our firm in a timely manner, and our interpretation shall prevail. |
1. Shenzhen City Accounting and Audit Supervision Newsletter
(1) Basic situation
As of April 30, 2022, a total of 2,6171[1] listed companies in Shenzhen City have disclosed their 2021 annual reports, including 1,485 on the main board and on the GEM 1 ,132 families. In terms of opinion types, 2,515 companies were issued standard unqualified opinion audit reports.
On May 5, the Shenzhen Stock Exchange released the "Empirical Analysis Report on the 2021 Annual Reports of Listed Companies in Shenzhen Stock Exchange". The report shows that in 2021, Shenzhen companies achieved total operating income of 18.3 trillion yuan, a year-on-year increase of 23.4%; non-financial companies achieved total operating income of 17.7 trillion yuan, a year-on-year increase of 23.7%. Among them, nearly 80% of companies have experienced positive revenue growth, and more than 40% of companies have experienced positive revenue growth for three consecutive years. Shenzhen companies realized a net profit of ,977.62 billion yuan for the whole year, and a net profit after non-profit deductions of 794.72 billion yuan, a year-on-year increase of 6.7% and 12.7% respectively. Among them, more than 80% of companies have achieved profitability, nearly 60% of companies have experienced positive profit growth, nearly 30% of companies have experienced profit growth of more than 50%, and 460 companies have achieved doubling growth. [1] As of April 30, 2022, there were 2,635 listed companies in the Shenzhen Stock Exchange, 7 of which failed to disclose annual reports on time, and 11 new listed companies this year have disclosed annual reports in their prospectuses, so they are not included in the statistics scope.
(2) Changes in audit institutions
According to public information disclosure, 269 companies in Shenzhen City have changed their audit institutions. Among them, 33 companies have changed from the original securities qualification exchange to a new registration exchange, 14 companies have changed exchanges more than twice this year, and 33 companies have changed exchanges for two consecutive years. The main reasons for the change of audit agency in
are as follows: meets the requirements of the State-owned Assets Supervision and Administration Commission and the Ministry of Finance on the rotation of audit agencies; there are differences in work arrangements with the previous audit agency; in accordance with the requirements of the actual controller, shareholders or directors or comprehensive consideration of the company's business development and future audit needs; the previous audit agency has provided audit services to the company for many consecutive years; the original accounting firm's appointment period has expired; the original accounting firm will not undertake the audit due to issues such as audit time and personnel arrangements, and other accountants have been added to the original audit team Firms etc..
(3) Supervision of new registration offices
As of April 30, 2022, a total of 36 listed companies in the Shenzhen Stock Exchange have hired new registration offices. Among them, Guangdong Sinong has taken over 16 companies, Pengsheng has taken over 3 companies, Shenzhen Jiu'an, Unitai Zhenqing, and Chongqing Kanghua have taken over 2 companies each, and Guangdong Zhongzongxin, Shenzhen Xutai and so on 11 companies. Each new office will undertake one.
(4) Key audit matters
Shenzhen Stock Exchange Company Audit Report Key audit matters mainly focus on revenue recognition, financial asset impairment, inventory impairment , goodwill impairment, asset recognition and other fields. Based on the industries in which listed companies operate, key audit matters in the manufacturing, software and information technology services, wholesale and retail industries mainly involve revenue recognition, impairment of accounts receivable, inventory impairment, impairment of goodwill, etc.; in the financial industry Key audit matters mainly involve impairment of financial assets, scope of consolidation and long-term equity investment etc.
2. Accounting policy information
(1) The China Securities Regulatory Commission issued the "Guidelines on the Application of Regulatory Rules - Accounting No. 2"
On December 24, 2021, the China Securities Regulatory Commission drafted and issued the "Guidelines on the Application of Regulatory Rules - Accounting No. 2" ", which aims to further improve the capital market regulatory rule system, improve regulatory transparency, and promote market entities to improve the quality of financial information disclosure. The relevant content mainly involves 14 specific issues such as income, financial instruments, corporate mergers, non-recurring gains and losses, and so on.
(2) The China Securities Regulatory Commission issued the "Compliance Manual for Accounting Firms Engaging in Securities Services Business"
On January 6, 2022, the China Securities Regulatory Commission released the " Compliance Manual for Accounting Firms Engaging in Securities Services Business " to guide people into securities auditing Accounting firms in the market have enhanced their awareness of compliance and standardized their professional practices. The manual introduces the relevant special regulations and quality management requirements for engaging in securities service business, and lists the legal responsibilities and relevant cases for violating relevant regulations on the securities audit market.
(3) The China Securities Regulatory Commission issued the "Guiding Opinions on Improving the Quality of Information Disclosure of Prospectuses under the Registration System"
On January 28, 2022, the China Securities Regulatory Commission issued the "Guiding Opinions on Improving the Quality of Information Disclosure of Prospectuses under the Registration System", aiming to To further promote the improvement of the quality of information disclosure in prospectuses, the main contents include: first, clearly adhering to the basic principles of being oriented by investor needs, adhering to problem orientation, adhering to due diligence, and adhering to comprehensive policy implementation; second, urging issuers and intermediaries to return to their original positions Be responsible and write and prepare high-quality prospectuses; third, give full play to the role of administrative supervision, self-regulation and market restraint mechanisms to guide and improve the quality of information disclosure in prospectuses; fourth, strengthen accountability and ensure various measures to improve the quality of information disclosure in prospectuses Implementation.
(4) The China Securities Regulatory Commission revised and issued the "Regulations on the Supervision of the Interconnection Depository Receipt Business of Domestic and Overseas Stock Exchanges", and the Shenzhen Stock Exchange issued the supporting business rules for the Interconnection Depository Receipts
On February 11, 2022, the China Securities Regulatory Commission revised and issued "Regulations on the Supervision of the Interoperable Depositary Receipt Business of Domestic and Overseas Stock Exchanges", this revision mainly includes the following contents: First, expand the scope of application. Domestically, it will include qualified listed companies on the Shenzhen Stock Exchange, and overseas, it will be expanded to Switzerland , Germany; the second is to allow overseas issuers of underlying securities to raise financing and adopt a market-based inquiry mechanism for pricing; the third is to optimize ongoing regulatory arrangements and make more optimized and flexible ongoing regulatory aspects such as annual report disclosure content and equity change disclosure obligations. rule arrangements.
On March 25, 2022, the Shenzhen Stock Exchange officially issued the "Interim Measures for the Listing and Trading of Interoperable Depository Receipts between the Shenzhen Stock Exchange and Overseas Stock Exchanges" and the "Shenzhen Stock Exchange Interoperable Depositary Receipts Business Guide No. 1 - Depositary There are three supporting rules: "Cross-border Conversion of Certificates" and "Shenzhen Stock Exchange Interconnection Depositary Receipts Business Guidelines No. 2 - Market Making in China Depository Receipts".
(5) The Ministry of Finance and the China Securities Regulatory Commission issued the "Notice on Further Improving the Effectiveness of Internal Control of Financial Reporting of Listed Companies"
On March 21, 2022, the Ministry of Finance and the China Securities Regulatory Commission jointly issued the "Notice on Further Improving the Effectiveness of Internal Control of Financial Reporting of Listed Companies" "Special Notice" aims to strengthen the management, guidance and supervision of the implementation of corporate internal control standards by listed companies, standardize the internal control and auditing behavior of accounting firms, improve the effectiveness of internal control of listed companies' financial reports and the quality of accounting information, and strengthen capital Financial and accounting supervision in the market sector.
(Six) Shenzhen Stock Exchange issued "Self-regulatory Guidelines for Listed Companies No. 14 - Bankruptcy and Reorganization and Other Matters"
On March 31, 2022, Shenzhen Stock Exchange issued "Self-regulatory Guidelines for Listed Companies No. 14 - Bankruptcy and Reorganization and Other Matters" ", which aims to be guided by market demand and centered on information disclosure, to guide and encourage listed companies to effectively prevent and control inside information, fully perform information disclosure obligations, and standardize the promotion of bankruptcy matters under the principle of no suspension of trading and less suspension of trading. .
(7) The International Sustainability Standards Council issued "International Financial Reporting Sustainable Disclosure Standard No. 1 - General Requirements for the Disclosure of Sustainability-related Financial Information (Draft for Comment)" and "International Financial Reporting Sustainable Disclosure Standard No. 2" ——Climate-related Disclosures (Draft for Comments)"
On March 31, 2022, the International Sustainability Standards Board (ISSB) issued "IFRS Sustainability Disclosure Standards No. 1 - General Requirements for the Disclosure of Sustainability-related Financial Information ( "Exposure Draft" and "IFRS Sustainable Disclosure Standards for Financial Reporting No. 2 - Climate-related Disclosures (Exposure Draft)" and publicly solicit opinions from the world. ISSB was established by the IFRS Foundation in November 2021 to develop benchmarks for sustainability-related information disclosure to meet the information needs of investors in global financial markets. The two international financial reporting sustainability disclosure standards issued by ISSB are designed to be compatible with the requirements of different jurisdictions and meet the information needs of a wider range of stakeholders. They will have a profound impact on the ESG investment philosophy and even the global green finance system. have a profound impact.
3. Typical case studies
[Important note: The case analysis shared in this chapter mainly comes from the advisory opinions of the accounting advisory committee of our firm. It is not equivalent to regulatory standards. It is for sharing and exchange only and should not be simply applied. 】
(1) Regarding the accounting treatment of goodwill impairment due to asset group portfolio division and multiple acquisitions resulting in asset group changes
In recent years, there have been many mergers and acquisitions in the retail industry represented by pharmacies and automobile 4S stores, and the purpose of mergers and acquisitions is often In order to expand regional influence, the acquired assets will also be integrated into the original management system to create synergy through coordinated supply and sales management. In practice, there are different methods for identifying relevant asset groups. If a company treats all acquired assets as separate asset groups, there will be a large room for estimation and the possibility of avoiding goodwill impairment through pricing transfers; if the company expands through continued mergers and acquisitions and self-built stores The scope of asset groups also makes it easier for companies to avoid asset impairment.
1. Case introduction and related issues
Case 1: Company A is a pharmaceutical retail chain enterprise. Due to the industry characteristics of retail pharmacies, in order to expand the company's market share in a short period of time, in addition to opening new stores, the company also Multiple acquisitions were made to expand the scale of operations and achieve business growth.
At the end of the 2020 reporting period, the book value of Company A's goodwill was 1 billion. The company divided the asset groups where the goodwill was located according to different areas, and conducted impairment tests on 20 asset groups, without individually deducting the goodwill formed by each acquisition. value test. The company believes that as far as the pharmaceutical retail business is concerned, although each retail store is an independent asset group, the company's drug procurement is carried out through regional centralized procurement, and the company implements a unified price system, personnel functions and In terms of internal management, the management system uses the area as a management unit, and when goodwill is impaired at the end of the period, goodwill impairment testing is conducted based on the management unit asset group. In each subsequent acquisition,
Company will directly include the acquired stores into the relevant area asset group portfolio.The company believes that each acquisition is in the same asset group combination or forms a new asset group combination, so there is no need to allocate the goodwill generated by an acquisition among different asset group combinations. In addition, the company tests all retail stores included in a region as an asset group portfolio for goodwill impairment testing, without distinguishing between owned and acquired assets, and even includes the company's subsequent self-built stores. The reason is that those who benefit from the synergies of the acquisition are the management units divided into areas, and the management units include all stores.
Question 1: Is it reasonable for Company A to divide the asset group portfolio by area, directly merge the subsequently acquired stores into the area asset group portfolio, and allocate the relevant goodwill to the original area asset group portfolio?
Question 2: Is it reasonable for Company A to include new self-built stores into the regional asset group portfolio and conduct a goodwill impairment test?
Case 2: Company B is a pharmaceutical retail chain enterprise with the same business model as A. As of the end of 2020, the company had completed a total of 50 mergers and acquisitions. During the initial identification, each acquired asset was identified as a single asset group, and goodwill was tested for impairment based on a single asset group. However, with the continuous internal integration of merger and acquisition projects, a three-level management and control model of "national management agency-regional headquarters-operation area" has gradually formed. The regional headquarters controls the operation, merchandise, human resources, finance, and information technology of the acquired assets. etc. are integrated and managed uniformly. Asset mergers, acquisitions, disposals and decisions are reviewed and approved by regional headquarters or national management agencies according to the amount, thereby completing the reorganization of the organizational structure and management system based on the region. Looking at the specific business: First, the company uses regional centers as the main body to purchase a variety of drugs from multiple suppliers, and the rebate methods are diverse and extremely complex, making it difficult to accurately calculate to a single asset group; second, the assets in the same region share a membership management system, and the points are universal , accounting is more difficult; third, the regional headquarters integrates the acquired assets and uses a unified business management system, performance appraisal system, training system, information system and cashier system, etc. It is difficult to achieve unified management of operations, commodities, human resources, finance, information technology, etc. among different asset groups in the region, and it is difficult to allocate sales and administrative expenses.
The company believes that the above situation has changed the operation and management model of the acquired asset group. The cash flow of the acquired assets is increasingly dependent on the regional headquarters, making it difficult to accurately and independently account for it, which is an internal reorganization. Therefore, the company plans to adjust the method of impairment testing of goodwill from "single asset group" to "regional asset group", but only the acquired assets will be included, excluding self-owned stores.
Question 1: Can Company B adjust the asset group formed by previous mergers and acquisitions?
Question 2: If not, for subsequent new acquisitions that take into account synergy effects, can the area be used as an asset group to allocate goodwill according to Company A's treatment method? (The main difference between Company A and Company B is whether regional synergies are taken into account during initial recognition)
2. Reference standards
(1) Article 18 of "Accounting Standards for Business Enterprises No. 8 - Asset Impairment" stipulates: " ...The identification of asset groups should be based on whether the main cash inflows generated by the asset group are independent of the cash inflows of other assets or asset groups. At the same time, when identifying the asset group, the management of the production and operation activities of the enterprise should be considered. method (such as by production line, business type, region or region, etc.) and the decision-making method for the continued use or disposal of assets, etc.
... Once the asset group is determined, it should be consistent for each accounting period and must not be changed at will. If a change is required, the management of the enterprise shall prove that the change is reasonable and make corresponding explanations in the notes in accordance with the provisions of Article 27 of these Standards. "
(2) "Accounting Standards for Business Enterprises No. 8 - Asset Impairment". Article 23 stipulates:
"Goodwill formed by business mergers shall be tested for impairment at least at the end of each year. Goodwill shall be tested for impairment in conjunction with its related asset groups or combinations of asset groups.
Related assets The asset group or asset group combination shall be an asset group or asset group combination that can benefit from the synergistic effect of the business combination, and shall not be larger than the reporting segment determined in accordance with the "Accounting Standards for Business Enterprises No. 35 - Segment Reporting"."
(3) " Business Accounting Standards Explanation " (2010) Chapter 9 "Asset Impairment" Section 5 "Goodwill Impairment Testing and Treatment" "1. Basic Requirements for Goodwill Impairment Testing" provides To:
"Goodwill formed by business combinations should be tested for impairment at least at the end of each year. Since it is difficult for goodwill to generate cash flow independently, impairment testing should be conducted in conjunction with its related asset groups or asset group combinations. For the purpose of asset impairment testing, the book value of goodwill formed due to a business combination shall be allocated to the relevant asset group in a reasonable manner from the date of purchase; if it is difficult to allocate it to the relevant asset group, it shall be allocated to the relevant asset group. Asset group portfolio. These related asset groups or combinations of asset groups should be those that can benefit from the synergy effects of the business combination, but should not be larger than the report determined in accordance with "Accounting Standards for Business Enterprises No. 35 - Segment Reporting" Division. When an enterprise allocates the book value of goodwill, it should allocate it based on the situation that the relevant asset group or combination of asset groups can benefit from the synergy of the business combination, and conduct a goodwill impairment test on this basis.
If an enterprise changes its reporting structure due to reorganization or other reasons, thus affecting the composition of one or several asset groups or asset group combinations to which goodwill has been allocated, it shall re-allocate the goodwill to the affected asset groups in accordance with a reasonable method. Or a combination of asset groups. "
(4) "Accounting Supervision Risk Warning No. 8 - Goodwill Impairment" stipulates:
"First, when the company identifies an asset group or a combination of asset groups, it should fully consider the management or management of production and operation activities. Monitoring methods and decision-making methods for the continued use or disposal of assets, the identified asset group or combination of asset groups should be able to independently generate cash flows. It should be noted that an accounting entity is not simply equivalent to an asset group.
Second, the company should allocate the book value of goodwill according to the proportion of the fair value of each asset group or asset group combination on the basis of fully considering the asset groups or asset group combinations that can benefit from the synergy effects of the business combination. . When determining the fair value of each asset group or combination of asset groups, it should be carried out in accordance with the relevant requirements of "Accounting Standards for Business Enterprises No. 39 - Fair Value Measurement". If the fair value is difficult to reliably measure, it can be apportioned according to the proportion of the book value of each asset group or combination of asset groups.
……
Fifth, if the company’s operating components change due to reorganization or other reasons, which then affects the asset group or asset group combination in which the goodwill has been allocated, the book value of the goodwill should be reallocated to the affected assets. group or asset group combination, and fully disclose the relevant reasons and basis.
Sixth, the company should allocate goodwill to relevant asset groups or combinations of asset groups on the purchase date and keep it consistent in subsequent accounting periods. When a subsidiary acquired when goodwill is formed is subsequently re-merged, reinvested, or disposed of important assets, the asset group or asset group combination in which the goodwill is located should not be expanded or reduced at will, unless the conditions in point 5 above are met. ”
3. Advisory opinion
Most members of the Accounting Advisory Committee believe that the two companies in the above cases should consider whether the main cash inflows generated by the relevant asset portfolio (minimum asset portfolio) are independent of other assets or asset groups based on their actual conditions. The asset group (including newly built and outsourced stores) is determined based on factors such as the cash inflow, the management or monitoring of production and operation activities, and the decision-making method for the continued use or disposal of assets. If there is objective evidence to prove: Section 1. First, the company's business expansion through acquisitions and newly-built pharmacies is in line with its own business model; secondly, the relevant asset groups or asset group combinations formed by subsequent acquisitions and new pharmacies can produce synergistic effects with other original asset groups or asset group combinations, thus Third, if the company adjusts its reporting structure accordingly after acquiring and building a new pharmacy, thus affecting the composition of one or several asset groups or asset group combinations that have allocated goodwill, it can According to a reasonable method, the goodwill is reallocated to the affected asset group or combination of asset groups.
However, the following situations need to be paid attention to in the supervision work: First, it is necessary to determine whether the relevant asset groups or asset group combinations formed by subsequent acquisitions and newly built pharmacies and other original asset groups or asset group combinations can be merged from the enterprises that formed the relevant goodwill. Benefits from synergies, and whether the company adjusts its reporting structure accordingly, should be based on facts that actually exist at the company's operational level. For example, whether the company's subsequent acquisitions and new drugstores are based on the company's established strategy or operation and management model; before the implementation of the corresponding acquisitions and new drugstores, whether the materials and information generated by the company's relevant investment decision-making process can clearly reflect the company's argument for seeking the above-mentioned synergy effects and considerations; whether there are actual results that can reflect synergies at the business level after the acquisition and new drugstores are completed, and whether the relevant reports regularly submitted to the management within the company have shown relevant adjusted results accordingly, etc. Companies cannot arbitrarily adjust the asset group or asset group combination corresponding to goodwill for the purpose of earnings management or profit manipulation. Second, regarding the "reorganization" mentioned in the above-mentioned guidelines "due to reorganization and other reasons", the committee members believe that it should refer to reorganization in a broad sense, including substantive adjustments to the corporate organizational structure and management system. Third, whether the asset group in the above case is allowed to be expanded or reduced may differ in current practice under different regulatory backgrounds. For example, during the issuance and listing review process, the review and control standards for the expansion or reduction of the asset group or asset group combination corresponding to the issuer's goodwill during the reporting period are usually more stringent.
(2) Regarding the determination of debt-for-equity swap stock prices during the implementation of debt restructuring of listed companies
1. Case introduction and related issues
C Company is mainly engaged in non-ferrous metals smelting. On November 1, 2019, the creditors applied to the court for debt reorganization of the company on the grounds that the company could not pay off its due debts and clearly lacked solvency; on December 1, 2020, the court ruled that the company had entered the reorganization procedure. , on December 20, 2020, the court made a ruling to approve the reorganization plan submitted by the administrator, and terminated the company's reorganization process, and the company entered the implementation stage of the reorganization plan; on December 31, 2020, the company administrator reported to The court reported on the company's implementation of the reorganization plan, believed that the company had completed the implementation of the reorganization plan, and requested the court to make a ruling to confirm the completion of the reorganization plan. On the same day, the court issued a ruling confirming that the company's reorganization plan had been implemented.
According to the debt restructuring plan, the company will use the existing total share capital of 300,000,000 shares as the base, and implement the conversion of capital reserve funds into shares at the ratio of 12 shares for each share. A total of 360,000,000 shares will be transferred, of which 100,000,000 shares will be used to introduce restructuring investors. , and the funds provided by the restructuring investors will be transferred conditionally, and the remaining shares will be used to directly offset the company's debts.
Question 1: There are currently multiple views on debt-for-equity stock pricing methods: One is to use the closing average price of the company's stock market transactions between the court acceptance date and the debt termination date; the second is to use the fair value on the debt termination date .
Question 2: There are many views on the determination of the debt termination date: first, the date when the court approves the reorganization plan (December 20, 2020); second, the date when the reorganization plan has been implemented (December 31, 2020).
Question 3: Should the fair value on the debt termination date be determined based on the stock closing price or the asset appraisal price on that day?
2. Reference Standards
(1) Article 11 of "Accounting Standards for Business Enterprises No. 19 - Debt Restructuring" stipulates: "If the debt is converted into equity instruments for debt restructuring, the debtor shall terminate the recognition when the debt is paid off. The debtor shall terminate the recognition when the conditions are met. When the debtor initially recognizes the equity instrument, it shall be measured according to the fair value of the equity instrument. If the fair value of the equity instrument cannot be measured reliably, it shall be measured according to the fair value of the debt repaid and the recognized amount of the equity instrument. The difference between them shall be included in the current profit and loss.”
Article 12 of "Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments" (revised in 2017) stipulates: "If the actual obligations of financial liabilities (or part thereof) have been discharged, the enterprise shall terminate the recognition of the financial liabilities Liability (or such part of a financial liability)”.
Article 34 of "Accounting Standards for Business Enterprises No. 39 - Fair Value Measurement" stipulates: "When an enterprise measures liabilities or its own equity instruments at fair value, it shall follow the following principles:
(1) There are identical or similar liabilities or the enterprise itself If the market quotation of the equity instrument is observable, the fair value of the liability or the enterprise's own equity instrument shall be determined based on the quotation.
(2) There is no observable market quotation of the same or similar liability or the enterprise's own equity instrument, but other parties will. If it is held as an asset, the enterprise shall determine the fair value of the liability or its own equity instrument from the perspective of the market participant holding the asset on the measurement date
based on the fair value of the asset. When it does not apply to the measured liabilities or the company's own equity instruments, the company should make adjustments based on the fair value of the assets, and use the adjusted value to determine the fair value of the liabilities or the company's own equity instruments. These characteristics include restrictions on asset sales and assets. It is similar but not identical to the measured liability or the enterprise's own equity instrument, and the measurement unit of the asset is not exactly the same as the measurement unit of the liability or the enterprise's own equity instrument.
(3) There are no identical or similar liabilities or the enterprise's own equity instrument that can be observed. If the market price is quoted and other parties do not hold it as an asset, the enterprise shall use valuation techniques to determine the fair value of the liability or the enterprise's own equity instrument from the perspective of the market participant who assumes the liability or issues the equity instrument."
3. Consultation. Opinion
Most members of the Accounting Advisory Committee believe that under normal circumstances, the closing price of a listed company's stock reflects the price formed in an orderly transaction, so the conversion price should be determined with reference to the closing price of the stock on the date of debt termination. In practice, the date of debt termination is usually based on the confirmation result of the court ruling document obtained. Therefore, the date of debt termination is usually the date when the court's ruling on the reorganization plan is completed. However, if the company's stock is still in the suspension stage on the debt termination date and the suspension has lasted for a long time, or there is no orderly trading of the company's stock in the market, the conversion price may be adopted as applicable on the debt termination date and there is sufficient available data. Fair value determined by valuation techniques supported by and other information.
(3) Regarding the recognition and follow-up processing of different forms of revenue consideration
1. Case introduction and related issues
D company’s business includes using its own production equipment to slice monocrystalline silicon rods or polycrystalline silicon rods provided by photovoltaic companies, that is, providing slices service. The entrusted processing contract stipulates that Company D will settle in cash for the slices within the specified number of slices; any surplus exceeding the specified number of slices will belong to Company D, and the entrusting company can purchase them at the prevailing market price. Company D has a more advanced slicing technology and can produce more slices than the market average. The slicing fee settled in cash can only cover the cost. Therefore, Company D signed this type of contract to obtain excess slices (or surplus slices) for sale.
Question 1: How should the savings exceeding the specified number of slices be confirmed and measured? How should subsequent sales of excess slices be confirmed and measured?
Question 2: If revenue from excess slices is recognized based on non-cash consideration, will there be a problem of double recognition of revenue during subsequent actual sales? If so, how to solve it?
2. Reference Standards
(1) Article 5 of "Accounting Standards for Business Enterprises No. 14 - Revenue" (revised in 2017) stipulates: "...the contract start date usually refers to the effective date of the contract."
"Accounting Standards for Business Enterprises No. 14 - Revenue" (revised in 2017) No. - Revenue" (revised in 2017) Article 15 stipulates: "The enterprise shall determine the transaction price based on the terms of the contract and combined with its past practices. When determining the transaction price, the enterprise shall consider the variable consideration and the existence of the contract in the contract. "The impact of factors such as significant financing components, non-cash consideration, consideration payable to customers"
(2) "Accounting Standards for Business Enterprises No. 14 - Revenue" (revised in 2017) stipulates: "Customers pay non-cash consideration." If the fair value of the non-cash consideration cannot be reasonably estimated, the enterprise shall determine the transaction price indirectly by referring to the stand-alone selling price of the goods it promises to transfer to the customer.If the fair value of non-cash consideration changes due to reasons other than the form of consideration, it shall be treated as variable consideration and accounted for in accordance with Article 16 of these Standards. Stand-alone selling price refers to the price at which an enterprise sells goods separately to customers. "
(3) "Accounting Standards for Business Enterprises No. 14 - Revenue" Application Guide (2018) "V. About Revenue Measurement" "(1) Determining the Transaction Price" is mentioned in the "3. Non-cash consideration" section:
“When the consideration that an enterprise is entitled to receive from customers for the transfer of goods is in non-cash form..., the enterprise shall generally determine the transaction price based on the fair value of the non-cash consideration on the contract inception date. If the fair value of the non-cash consideration cannot be reasonably estimated, the enterprise shall indirectly determine the transaction price by referring to the stand-alone selling price of the goods it promises to transfer to the customer. "
3. Consultation opinion
Most members of the Accounting Advisory Committee believe that if there is evidence that the processor actually "sells" surplus slices exceeding the specified number of slices to the entrusting party (for example, because there is a certain dependence relationship between the processing party and the entrusting party, Or due to the characteristics of the slices or other reasons, the processor has no commercial reason to sell the surplus slices to other parties, or the possibility of selling the surplus slices to other parties is very low), regardless of whether the contract stipulates that the processor has the right to sell the surplus slices. To other parties, it should still be considered that the processing party has not actually gained control over the excess slices, and the "sale" arrangement of the remaining slices needs to be regarded as some kind of variable consideration arrangement for the processor to provide slicing services to the client based on the nature of the transaction. The processor should only recognize the income from slicing services (including the amount received for "selling" the remaining slices to the processor), without separately recognizing the sales revenue of the remaining slices.
If the processor sells the remaining excess slices to a third party, Then the processing party actually obtains control over the excess slices. After providing slicing services to the client, the processing party shall recognize the processing service income (the retained excess slices are non-cash consideration, and the corresponding fair value of the excess slices on the contract start date is determined accordingly. Transaction price), and the remaining excess slices will be recognized as inventory accordingly (the fair value of the excess slices on the contract start date will be used as the initial entry cost), and commodity sales revenue will be separately recognized when the retained excess slices are sold to a third party. Carry forward the cost of sales of the corresponding goods.
It should be noted that in practice, the judgment of whether the processor obtains control of excess slices may be complicated and should be made based on factors such as the degree of standardization of the relevant slices and whether the processor is dependent on the client. Detailed analysis.
(4) Regarding the offset of financial assets and financial liabilities
1. Case introduction and related issues
E Company’s main business is platinum alloy mesh processing business, and its main business model is the purchase of precious metals such as platinum, rhodium, and palladium. Or scrap nets containing precious metals are processed into platinum alloy nets and sold to customers. At the same time, the scrap nets disassembled by customers are usually purchased at a price and used as raw materials to reproduce new nets for sale. Therefore, most of the transaction objects are both customers and suppliers. In this case, the company recognizes revenue and cost respectively according to the total sales and purchases, but settles and reports accounts receivable according to the difference after the balance between receivables and payables. The sales contract between the company and the customer does not stipulate the settlement of the difference, and it is usually agreed upon the arrival of the goods. Payment or advance payment has no agreed account period.
Question: Can accounts receivable and accounts payable be offset and presented as accounts receivable?
2. Reference Standard
(1) "Corporate Accounting" Article 28 of Standard No. 37 - Presentation of Financial Instruments: “Financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset against each other. However, if the following conditions are met at the same time, the net amount after mutual offsets shall be presented in the balance sheet: (1) The enterprise has the legal right to offset the recognized amount, and the legal right is currently enforceable; ( 2) The enterprise plans to settle on a net basis, or to realize the financial assets and pay off the financial liabilities at the same time. For transfers of financial assets that do not meet the conditions for derecognition, the transferor shall not offset the transferred financial assets and related liabilities."
(2) The International Accounting Standards Board revised "International Accounting Standard No. 32 - Financial Instruments: Presentation" in 2011. The Board of Directors elaborated on the considerations for the revision in the Basis for Conclusions of the Standard. The Board of Directors The Board considers that the net financial assets and financial liabilities presented in the statement of financial position should represent the entity's exposures in the ordinary course of business and those that would not or would not be enforceable if one of the parties were to comply with the terms of the contract. The Board therefore clarified. Apply paragraph 38B of the guidance to comply with the criteria in paragraph 42(1) of IAS 32, that is, in the ordinary course of business of the entity itself and all counterparties, default on accounts and insolvency or bankruptcy The right of set-off must be legally enforceable, so that if something happens to one of the parties (including the entity itself), the other parties will be able to enforce the right of set-off. To combat defaulted accounts and insolvent or bankrupt transaction parties.
(3) The Civil Code stipulates that statutory set-off should meet the following conditions: “(1) Both parties bear mutual debts and share claims. The debts have all matured (3) The subject matter of the debts is of the same type and quality (4) If both parties have mutual debts due, either party may offset its own debts with the debts of the other party, except for the following circumstances: 1. Nature cannot be offset. For example, debts due to omission, debts for providing labor services, and debts such as pensions, pensions, alimony, etc. that are inseparable from the person. 2. No offset is allowed by law. For example: debts that are prohibited from being enforced (retaining the daily necessities of the person subject to execution); debts incurred due to intentional torts. If such debts are allowed to be offset, it is against public order and good customs; debts that have been agreed to be paid to a third party. 3. The parties have specifically agreed that offset shall not be allowed. "
3. Consultation opinion
Most members of the Accounting Advisory Committee believe that according to relevant accounting standards, the offset presentation of accounts receivable as financial assets and accounts payable as financial liabilities in the balance sheet must meet the "Accounting Standards for Business Enterprises" The relevant provisions of Article 28 of No. 37 - Presentation of Financial Instruments include the two conditions of "having currently enforceable legal rights" and "planning to settle on a net basis" in this case. There is no written agreement on net settlement, and according to the payment terms in the purchase and sales contracts, the payment should be settled on a gross basis. However, in actual implementation, Company E relies on a verbal tacit understanding and years of agreement between itself and its counterparty to settle on a net basis. , thus determining that it has the statutory right of offset. In this case, the legal determination issue should first be considered, that is, whether the oral agreement and practical practices can be used as legal evidence and whether it can replace the written contract. If it is difficult to become legal evidence and cannot replace a written contract, Company E should not use the net method to present accounts receivable and accounts payable after offsetting each other.
