Analysis of fair value measurement in the nonmonetary exchange of assets.doc

Analysis of fair value measurement in the non-monetary exchange of assetsAbstract: The release of the new accounting standards and implementation of a milestone in Chinas accounting profession. The new guidelines in a major bright spot is the exchange of non-monetary assets and other aspects of using fair value measurement. Meanwhile, in order to prevent abuse of the fair value of earnings manipulation occurs, the guidelines also artificial carefully provided for the use of the fair value of the premise, which is the fair value should be able to achieve a reliable and measurement. This article will explore the fair value of non-monetary assets, the impact of the exchange, and give some relevance to the proposal for reference only. Keywords: new accounting standards; fair value measurement; non-monetary assets exchange; commercial substance; cash flow 1, fair value and non-monetary assets exchanged Overview 1. Fair Value Fair value, that means a fair deal, are familiar with both transactions, the asset swap or debt settlement amount. Determine the fair value basis in accordance with the following three kinds: First, if the assets in an active market, then the market value of the asset shall be fair value; second is if the asset does not exist an active market, but with the assets of active market exists for similar assets, then the fair value of the assets related to a similar mutatis mutandis, to determine the market value of assets; third, if the assets and similar assets do not exist in an active market, then the fair value of the assets in accordance with the use of the asset can be derived from the present value of future cash flows assessment determined. 2. The exchange of non-monetary assets Non-monetary assets refers to assets other than monetary assets. Of non-monetary asset swap means that the main parties to the transaction in order to inventory, fixed assets, intangible assets and long-term equity investments and other non-monetary exchange of assets. This exchange does not involve, or involves only a small amount of monetary assets (ie the premium). Non-monetary assets to determine fair value principle is: if there is an active market of the asset, then the market value of assets to their fair value; if there is no active market of the assets of the assets with similar assets, there are still active in the market, then the The fair value of assets, mutatis mutandis, to determine the market value of the underlying assets: If the assets and similar assets and the assets do not exist in an active market, then the fair value of assets according to their future cash flows can be derived from the appropriate discount calculate the present value is discounted to determine the rate. Second, in our application of fair value measurement problems in 1. The reliability of fair value measurement is difficult to ensure the Compared with the actual exchange based on historical cost measurement, fair value measurement can provide investors with a more effective decision-making information, but due to the development of Chinas relevant market is not mature, market transactions is not lively enough and do not have the International Financial Reporting Standards in the The mature market economies, and therefore the fair value of the developed markets more easily identifiable under the conditions of how to identify the fair value of our country became a problem, then many of the fair value of financial instruments can not be reliably measured, it may occur manipulated the results of measurement circumstances, it will be difficult to meet the quality requirements of the reliability of accounting information. 2. Fair value measurement may become a tool for regulating profits Since the development of the relevant market in China is not mature, fair value may be difficult to achieve fair, and is likely to become profitable manipulation tool. The current domestic rating agency for the fair value of the experience is quite lacking, and in practice there may be certain difficulties, but use different assessment methods may bring about different results of the evaluation if there is no reliable basis for the market value of the case, identification, such as calculation of the fair value of cash flows discounted value of the time, cash flow estimates, the estimated discount rate or discounted period of estimation, we need to determine with artificial - this is the objective existence of operating profit space. 3. Fair value measurement easily lead to frequent price fluctuations Compared with the historical cost, fair value with changes in market prices change, of course, can reasonably reflect the value of the assets at that time, but if the asset price volatility is always busy, but also will inevitably lead to financial condition and profitability changes, which are due to changes in the external environment such as gains and losses arising from the change may not be able to provide very relevant information, and may even mislead users of financial statements. For listed companies, if the market on raw materials or commodities, a little bit of change can cause large changes in stock prices, this is not a good thing, after all, given investors the impression that the development of the companys financial instability. 3, fair value measurement in the non-monetary assets, the exchange of application problems in 1. Likely to cause a larger operating space of profits The new accounting rules for the exchange of non-monetary assets, if the commercial substance, and the exchange of assets or exchange out of the fair value of the assets can be a reliable measurement, it should be paid for at fair value and the related income tax as an exchange of assets cost, fair value and swapped out the difference between the book value of assets included in current profit and loss, in the past non-monetary assets gains arising from transactions can only be credited to the capital fund, after the implementation of new accounting standards can be directly charged to current income into the enterprise income statement This is the fair value of the profit once again become a tool for manipulation. 2. In the table easily lead to net gain or loss recognized and actual cash flow deviated from the After the implementation of new accounting standards, corporate asset replacement of profits that may arise, such as high-quality assets in exchange for bad assets. If a non-monetary assets, the exchange has commercial substance, change or exchange of assets out of the fair value of the assets can be a reliable measurement, fair value and swapped out the difference between the book value of assets can be included in current profit and loss, this will affect the current period profit , businesses can through asset substitution or restructuring to improve the current profits. But in fact here confirmed the exchange of non-monetary assets gains and losses may not have the cash flow as a support, either no real sense of the existence of cash flow, that is, there is no cash inflows or outflows in the case reported under the increase or decrease in profits or losses. Reposted elsewhere in the paper for free download 3. For information on the disclosure of fair value less, is not conducive to the exchange of non-monetary assets for the supervision and management As the fair value accounting and other areas in the extensive use of accounting reports need to increase the fair value disclosures. As the fair value measurement will encounter more complex, requiring the use of a large number of assumptions and estimates, therefore, fair value accounting standards deal with the formation of specific forms of measurement and disclosure norms to ensure that the information disclosed is true, to meet the requirements of information users . Fourth, suggestions for improvement of the above issues 1. Who can not obtain quotations from active market, as well as valuation techniques to deal with future cash flows of its size and scope of the discount rate to make specific provisions For non-monetary assets, the compromise can be used in practice that the future cash flows and the discount rate is not entirely subjective judgments by the decision, nor will the discount rate is fixed at a specific value, but according to non-monetary assets of different types of future cash flows and discount rates provided a range, allowing a certain degree of float. From this subjective judgments that can reduce the space, but also a variety of non-monetary assets due to the specific exchange business can make some adjustments to the different, it would enhance the exchange of non-monetary assets in the fair value of reliability. 2. To develop detailed technical specifications to obtain fair value, to enhance its reliability, and to disclose non-monetary assets to determine the fair value method of Should determine the fair value of the technology specifications. The determination of fair value on the one hand be based on market prices: the existence of an active market are the actual market quotes, a recent trading days market price; the other hand, consider the valuation of technology, the transaction price of similar assets, the industry benchmark price, future cash flows The DCF method and option pricing models. If you need to use valuation techniques, market participants should be selected generally recognized, and has been in the past the actual market transaction prices verify reliability of the valuation techniques should also be maintained using the fair value method of valuation and policies consistently throughout the enterprise. For enterprises is also necessary to update the information system to have an active market quotations, collect and collate relevant information, to establish a computer tracking system and other aspects of the work. 3. For non-monetary assets, the exchange of commercial real specific judgments, should be disclosed in the notes, and focus on related-party transactions detailed description of The provisions of the general guidelines are too detailed operational level will cause less, but the provisions are too broad and will also lead to abuse. Therefore, the response to one of the significant, significant is given a specific number of references, at least for their commercial real basis for the introduction of the notes to the judge to disclose. If an exchange to meet the conditions for a deal with companies on the exchange notes, respectively, into the assets and swapped out the assets of the risk of future cash flows, timing and amount set out to make a brief comparison; If you meet the second condition, they are required to disclose a brief exchange into the enterprise assets into the business for a particular value - that is, the expected present value of future cash flows for the assets and the existence of significant differences and differences in the causes. At the same time, since the new guidelines of assets within the meaning of the present value of expected future cash flows, is based on the enterprises themselves, rather than market participants, the evaluation of the asset specific risks, choose the appropriate discount rate on the amount to be determined after discounting and, therefore, the discount rate should also be made to determine the appropriate disclosure. In addition, as listed companies report the use of cosmetic related party relationship is more common phenomenon, when the business relationship where control exists, regardless of whether the related party transactions are non-monetary asset swap deal with the related party relationships fully disclosed in the notes. V. CONCLUSIONS Of new accounting standards used in measuring fair value accounting development in China a major breakthrough in accelerating Chinas accounting standards with international accounting standards, the pace of convergence, the use of fair value in our country still exist some problems. In this paper, the fair value of assets in non-monetary exchange problems: fair value measurement, the fair value of the acquisition, Yun-price value of the valuation techniques, fair value of the information disclosure and other aspects of the analysis and to address these issues is given some superficial recommendations. References: 1 Tao Yanfeng: application of the fair value of acute effects of theory J, Chinas agriculture accounting, 2008 (05). 2 Ministry of Finance: Corporate Accounting Standard 2006 M Economic Science Press, 2006. 3 Chen Mei-hua: fair value measurement of basic research, the Chinese Ministry of Finance, Economic Publishing House, 2006,6. 4 Ren Tingting: the fair value of assets in non-monetary exchange of applied research, finance and accounting, 2008,08. Reposted elsewhere in the paper for free download