Problems and Countermeasures of Fair Value Application in China



1.1 lack of mature and effective market environment

Fair value is in a fair transaction, familiar with the transaction parties voluntarily exchange assets or debt settlement amount. The acquisition of fair value should be carried out under an active and fully competitive market conditions. It requires both parties participating in the transaction to fully understand the market situation on a voluntary principle, and the degree of information asymmetry should be minimized as much as possible. The market price of the right of claim can be publicly consulted, and they have taken into account the risk factors of various transactions during the transaction, and determine the transaction price accordingly. Although my country's market economic system has been basically established, the transformation of this economic system has not been completed, non-market-oriented factors still exist, non-monetary transactions between enterprises are not standardized, securities trading markets, property rights trading markets, and production materials markets. It is not mature, prices are difficult to truly reflect value, and the fair value of most assets is difficult to obtain. Therefore, the soil and environment suitable for the application of fair value are not yet mature, resulting in the use of fair value measurement in practice is more difficult.

1.2 Lack of highly qualified and skilled accounting personnel

The fairness of the price of the same transaction may be different when it occurs at different times, and even if it occurs at the same time, the fairness of the price will be different depending on the location of the transaction. Due to the difficulty of obtaining fair value and the difficulty of obtaining methods, higher requirements are put forward for the professional skills and professional judgment ability of accountants. When using fair value measurement, the accountant is not only the preparation of the statement, but also the appraiser. At present, there are about 12 million accounting practitioners in China, and about 80% of them are in the basic accounting stage. There is still a big gap in the transformation from financial accounting to management accounting. The overall practice ability of accounting personnel is low, and the level of computerized accounting and related information processing ability are not high. It is difficult to correctly understand, measure and apply fair value. Fair value In actual operation, although accountants know which specific businesses need fair value measurement, but how to measure and where to find the reference, they are at a loss and unable to do so. As a result, accountants use more subjective and arbitrary measurement of the fair value of relevant assets and liabilities. The resulting financial data become neither relevant nor fair nor reliable, which greatly affects the quality of financial information. The overall business quality of accountants is low and their comprehensive judgment ability is poor, which has become another problem in the rational application of fair value.

1.3 faces the challenge of moral hazard of enterprise executives and accountants

Fair value is essentially an estimated amount and requires subjective judgment of accountants. Since there is subjective judgment, it is bound to be affected by the subjective will of enterprise management and accountants to varying degrees. At present, there are still many defects in China's corporate governance structure, some executives lack of moral values and integrity awareness, easy to cause or force accountants to use fair value to manipulate profits, whitewash financial statements. In the face of the great temptation of money and power, accountants often lose their moral standards and professional conscience, or take the initiative or under pressure to make false assessments of assets measured at fair value, or even deliberately manipulate profits by fraud, fraud and other means. In the current context of such a lack of ethics to promote fair value, we are bound to face the challenge of moral hazard of corporate executives and accountants.

The actual operation of 1.4 fair value measurement is difficult

The new accounting standards only stipulate the basic principles of accounting, and many regulations are very complicated. Accountants not only need to systematically learn value evaluation techniques and methods, but also need to make more professional judgments, which directly increases the difficulty of accounting. In particular, fair value is not easy to determine when market transactions are inactive or market prices are lacking, in which case it is necessary to estimate fair value using present value techniques. However, the amount, timing and discount rate of future cash flows are uncertain and often face great difficulties in measuring operations. Therefore, the complexity of present value measurement is also one of the difficult problems that fair value measurement is not easy to apply and promote.

1.5 Lack of Perfect Fair Value Theoretical System

Although the new accounting standards make extensive use of fair value, there is no single specific standard on fair value. The theoretical basis has not been finalized and the calculation method is not standardized. The application of fair value is reflected in other specific standards, which makes fair value measurement lack corresponding and effective explanation and guidance. At present, the theoretical system of fair value is not perfect, many problems are still in the study, fair value in accounting practice is still in the exploratory stage, which is not conducive to the promotion and application of fair value.

1.6 increases the management cost of enterprises

For enterprises that use fair value for accounting measurement, accountants need to analyze various factors at the end of each accounting period, determine the fair value of relevant assets and liabilities, adjust tax matters, and include off-balance sheet businesses such as derivative transactions and hedging into on-balance sheet accounting. This process will increase the workload of accountants and increase the management costs of the enterprise. Compared with the historical cost, the use of fair value measurement will undoubtedly cost more, which stifles the enthusiasm of small and medium-sized enterprises to adopt fair value measurement.

2 Research on Countermeasures for Applying Fair Value in China

2.1 Improve the Economic Environment and Establish a Unified, Open, Active and Fully Competitive Trading Market

First of all, we should vigorously strengthen the construction of China's market economy and establish a perfect market system. As far as my country's current market environment is concerned, there is an urgent need to improve the capital market, expand the bond market, bill market, foreign exchange market, gold and other precious metal markets, and establish a fully competitive production material market and second-hand trading market, especially the real estate market and financial instrument market. So that the acquisition of fair value is more objective, more timely and more economical. Secondly, it is necessary to break the industry monopoly, reduce the access conditions of finance, telecommunications, energy, electric power and other industries, and allow private capital to enter the financial, insurance and other fields; at the same time, fully introduce the market competition mechanism, encourage mixed operation, and break the restrictions of separate operation. Third, standardize and restrict government behavior, make the government administer according to law, make enterprises truly become independent and free market trading subjects, and ensure the realization of fair market prices.

2.2 to establish a national market price information data network and market information database

The establishment of a national market price information data network will greatly promote the openness and real-time of price information, and facilitate enterprise accountants to select appropriate data when using fair value to price assets. The revenue, rate of return, cost, price, production volume, sales volume, etc. realized by each enterprise over the years are entered into the market information database for later use in forecasting future cash flows. The income realized by the enterprise history is often an important basis for predicting future earnings, and the future cash flow can be predicted by the past cash flow information in the database, thus changing the present value technology from complex to simple.

2.3 to improve the professional ethics and professional quality of enterprise managers and accounting practitioners

On the one hand, enterprises are required to speed up the construction of modern enterprise system and integrate with the market as soon as possible, so that accountants can accept the tempering of the market; on the other hand, they should improve the knowledge structure of accountants and improve their theoretical literacy and knowledge skills, lay a solid foundation for the application of fair value accounting. The measurement of fair value mainly depends on the professional judgment of accountants. To improve the professional judgment ability of accountants, we should start from two aspects: one is to strengthen the construction of professional ethics, strengthen legal education, and require accountants to deal with accounting business on the basis of not violating laws, regulations and accounting system; at the same time, we should strengthen the construction of integrity, maintain professional conscience, and firmly establish pragmatic and realistic professional ethics, Fundamentally eliminate the occurrence of false phenomenon. The second is to strengthen business training through follow-up education to help accountants become familiar with and master new accounting treatment methods and procedures. In short, reasonable evaluation techniques and skilled and honest accounting team is the premise of the normal use of fair value model, the improvement of the quality of accounting personnel is the guarantee of the use of fair value model.

2.4 Strengthen the study of fair value theory and gradually improve the accounting theory system

The study of fair value theory helps to guide the practice of accounting practice. Short-term research should focus on the study of fair value relevance, reliability and operability, while long-term research should focus on the sound theoretical system of fair value measurement attributes. The Accounting Standards Board of the Ministry of Finance and the accounting theory community should study in depth the fair value standards of the United States and the International Accounting Standards Board, and formulate an operational specific standard or application guide for fair value measurement as soon as possible, taking full account of China's national conditions. This specific standard or application guide should clearly define and elaborate on the details of fair value measurement. For example, the operation of present value technology should be as detailed as possible to define the present value of the recognition, measurement issues, should be clearly defined when the use of present value, when the use of present value is preferred, the choice of discount rate and the choice of discount method should also be clearly defined. For example, for the qualitative and quantitative fair value to give a clear standard, as far as possible to standardize the operation, minimize subjective judgment, in order to facilitate the accounting personnel to carry out practical operations.

2.5 to strengthen the regulation of fair value measurement

Fair value to be a tool for profit manipulation needs to have three elements at the same time: deliberate fraud by corporate management and accountants, loss of ethics by auditors, and failure of market regulation. In fact, with these three elements, any system can not effectively play a protective role. Therefore, fair value needs a series of institutional guarantees, strengthen social supervision including accounting firms, regulatory agencies, stock exchanges, professional media, etc., promote enterprises to strictly abide by accounting standards, and make fair value under the guidance of industry "judges" who master the rules. Implement under the guidance, severely punish malicious manipulators of fair value and beneficiaries, and escort the implementation of the standards with "iron discipline.