Study On Fair Value Measurement Theoryand Applications Of China’s Bonds Under The Background Of New Financial Instrument Accounting Standards

The report of the 20 th National Congress of the Communist Party of China pointed out that the focus of economic development should be on the real economy.Financial activity leads to economic activity,while financial stability leads to economic stability.In order to better achieve the goal of serving the real economy,financial institutions should disclose and transmit information about financial instruments,financial activities,and financial risks truthfully and fairly.Fair value,as the primary measurement method for financial instruments,is a key indicator for revealing the realizable value and risk of financial instruments.The global financial crisis that broke out in 2008 once criticized the original accounting standards for financial instruments,and also sparked further thinking and improvement on fair value measurement.In order to achieve continuous and comprehensive convergence with the international standard IFRS 9,as well as to address accounting practices related to financial instruments,the Ministry of Finance revised and issued standards such as "Accounting Standards for Business Enterprises No.22-Recognition and Measurement of Financial Instruments" and "Accounting Standards for Business Enterprises No.37-Presentation of Financial Instruments" in March 2017(hereinafter referred to as "new financial instrument accounting standards" or "new standards"),and require companies listed domestically and internationally to implement this standard in stages starting from January 1,2018.Compared with the original accounting standards,the new standards for financial instruments have undergone great changes in the classification,measurement,impairment recognition and information disclosure of financial assets.Then what are the actual implementation effects,what problems will enterprises face in the implementation process,and how to solve these difficulties and challenges? At present,none of these questions have been systematically answered.In order to deeply explore the implementation effect of China’s new financial instrument accounting standards and provide solutions to the difficulties and problems faced in the implementation process,this research takes bonds as the main research object and focuses on China’s banks,securities companies and other listed financial institutions as the main sample,then summarizes the development process and trend of bond fair value measurement theory,analyzes the changes and difficulties and problems in the application of fair value measurement of bonds before and after the implementation of the new standard,and put forward solutions on how to improve the above situation finally.Through a series of studies,the following conclusions have been drawn:(i)From the perspective of theoretical development,the concept and method of the fair value of bonds have been widely accepted in the world.China’s accounting standards for financial instruments are geared to international standards basically.The new standard focuses on the classification,valuation,impairment recognition and information disclosure of financial assets,and significantly improves the overall management level of financial assets.(ii)From the perspective of application status,this research finds that Chinese financial institutions still have the following problems and challenges in the measurement of fair value of bonds under the background of the implementation of the new standard: a)the proportion of fair value measurement of bonds is still low,and there are situations where they "do not want to use" fair value,"cannot use" internal valuation,and "dare not use" third-party valuation;b)The standards for fair value measurement within the institution are not uniform,and the second and third levels of measurement have a high degree of subjectivity;c)The solely payments of principal and interest(SPPI)test of bonds forms multiple tests on the quality of basic data,the business ability of accounting personnel and system construction technology;d)The measurement of expected credit loss(ECL)of bonds faces some challenges in determining parameters such as impairment stage division,default loss rate,forward-looking adjustment and model construction;e)The quality of fair value measurement information disclosure of bonds needs to be improved.For example,some bonds have problems such as lack of disclosure content,inconsistent standards,and low degree of digitization,which affects the quality of fair value measurement,and the information disclosure of measurement elements such as SPPI test process and standards,valuation parameters,ECL model parameters and quantitative standards also needs to be improved.(iii)Considering that the implementation of bond SPPI test and ECL model has high requirements for model construction and system optimization,and requires a large amount of underlying data support,this research suggests that on the one hand,the management department should evaluate whether the market institution has the qualifications and ability to build its own model;on the other hand,the results obtained by using self-built models should also be reviewed and supervised,and it is recommended that market institutions take the SPPI test and ECL calculation results provided by professional and authoritative third-party institutions as a benchmark.If the results obtained by the self-built model are different from the benchmark,the market institution should issue a report to the regulatory authority timely and make a detailed and accurate explanation.In addition,for market institutions that do not conduct bond SPPI testing and ECL calculation through self-built models,the relevant product results released by neutral and professional third-party valuation institutions can be directly used,which not only helps to improve the quality of fair value measurement,and reduce risks and costs,but also alleviates the subjectivity of internal measurement and improves the consistency and comparability of results.(iv)In order to alleviate the shortcomings of bond information disclosure,this research argues that it is necessary to improve the content of information disclosure,optimize the method of information disclosure,and build an information sharing mechanism.In terms of content,it is necessary to improve the information disclosure of basic elements of bonds such as defaulted bonds and interbank certificates of deposit,and promote the penetrating supervision of ABS underlying asset information.At the same time,it is necessary to strengthen the disclosure of bond classification process,valuation parameters and ECL model information.In terms of methods,it is necessary to promote the unification of bond information disclosure standards,and then promote comprehensive digitalization through the use of XBRL,blockchain and other means to improve the efficiency of fair value measurement.In terms of sharing mechanism,on the one hand,it is necessary to establish a multi-institutional sharing mode of bond basic information,and on the other hand,it is suggested building a bond industry parameter sharing and exchange platform,and strengthening the exchange and sharing of parameters of default debt recovery rate,RMBS early repayment rate,default rate,ECL and so on.Possible innovations and contributions to this research lie in the following aspects:(i)By sorting out the theory related to the fair value of domestic and foreign bonds,and summarizing the development trends,this research can deepen the understanding of the fair value measurement theory of bonds,and contribute to the implementation of the new accounting standards for financial instruments.(ii)Based on the background of the new accounting standards for financial instruments,this research can further enrich and develop the existing research on the theory and practice of the application of fair value of bonds in China,expand the understanding of the current implementation status of the new standards,and mitigate the scarcity and lag of related research.(iii)From the perspective of third-party valuation,this research explores and proposes the application mode of third-party valuation to provide comparative benchmarks in SPPI testing and ECL measurement,so as to provide certain enlightenment for deepening the application of standards and promoting the development of the bond industry.(iv)This research also proposes a way to improve the quality of bond information disclosure from the three levels of bond information disclosure content,form and sharing mechanism,which can form a certain reference role for improving the quality of bond fair value measurement,improving the operation efficiency of the bond market,and maintaining the stability of the financial market.