The Main Issues Discussed In The Counter Purchase Accounting Treatment Of The Consolidated Financial Statements

Counter purchase, as one method of enterprise merger & re-structuring and financing, has fluctuated reversely with the ups and downs of IPO market since 2008. From September 2008 to June 2009, IPO suspended for about eight months,189 trading days in total. On the capital market, a wave of counter purchase was prevailing. From October 2012, IPO suspended again till December 31st,2013,14 months altogether. Therefore, another wave of counter purchase came into being again. According to the latest statistical data provided by Center of Scientific Research, Chinese enterprises has completed 1,015 cases of enterprise mergers & acquisitions in the previous 11 months in 2013, a year-on-year increase of 23.8%. The trade volume involved in domestic mergers & acquisitions market has reached 72.623 billon Yuan in the previous 11 months in 2013, a year-on-year increase of 65.8%, which was also the highest record of trade volume for seven consecutive years. Among the top ten individual shares in terms of the trading scale of merger & re-structuring, three companies adopted back-door listing, i.e., Port of Beihai, Hongcheng Share and Canal Technology with the trade scale of 819 million dollars,899 million dollars and 2.088 billion dollars respectively. Therefore, counter purchase is one important method adopted by enterprises in merger & re-structuring. The significance of accounting handling is evident without the need of explanation. However, the regulations related to accounting handling still lack a relatively perfect theoretical framework.Domestically, the rules and regulations formulated by Ministry of Finance compensate for the blanks in the regulations on accounting handling in counter purchase. However, there is still an absence of explicit and detailed guidance on solving some difficulties. The practice-oriented people’s understanding of this and accounting handling demonstrate some deviations. A unified common agreement is not reached. The deviation may result in non-comparability of the consolidated financial data in enterprises, distortion of information and the damage of report users’ interests. Therefore, the current accounting principle and rules wait for modification and improvement so as to guide the healthy development of domestic capital market and mergers & acquisitions. Compared with domestic market, counter purchase has been used by multiple enterprises as one common financial form in the capital market both at home and abroad. For this reason, International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) in the USA have formulated a set of relatively well-improved rules and regulations which can provide some references for the accounting principles in our country. For example, the international identification with counter purchase can direct the future orientation of revision of relevant accounting regulations in our countries.Based on the above factors, the study chooses the selection of consolidated methods, determination of the purchase side, determination of consolidated cost and the formulation of consolidate statements as the object. Based on the current accounting principles and regulations in enterprises, the paper explains the case of the backdoor listing of "Huaying Technology" by "Fujian Mindong" and analyzes the rationality of accounting handling in each part involved in counter purchase. Besides, in terms of the difficulties and emphases, the paper conducts comparative analysis on them with other cases of counter purchase, thus concluding some common problems and putting forward relevant reflections and suggestions by combining with the accounting principles. It is hoped that the economic essence of counter purchase can be clarified and that the comparability of accounting information can be enhanced through the study. Besides, the paper aims at figuring out relevant accounting problems and making systematic and standard conclusions in order to guide the practices and facilitate the healthy development of domestic capital market and reverse mergers in enterprises.