A Study On The Classification Of Financial Liabilities And Equity

The classification of financial liabilities and equity instruments has always been one of the most difficult accounting problems.The classification of innovative and complex financial instruments caused more and more controversy.For enterprises,rich financial instruments can provide enterprises with a more diversified financing channels to help enterprises to develop,but the relevant accounting classification issues may cause other unprecedented challenges;for investors,whether the classification of financial instruments is reasonable or not may have a significant impact on their investment decisions;for regulators,the existence of the controversy and fuzzy areas about the financial liability and equity instruments greatly improve the difficulty of regulation;for accounting standards development agencies,the financial instruments Classification problem undoubtedly lies in the minds of policymakers.It is not only beneficial to correctly determine the liabilities,interests and net income of the enterprises,but also to the correct calculation of the financial leverage ratio and other relevant financial indicators which will affect the financial objectives of the enterprises.Secondly,the result of the division of the tools is directly related to the measurement of the capital structure of the enterprise,which can influence the financing policy and the investment decision of the enterprise.Therefore,it is very important to study how accurately and effectively classify financial liabilities and equity instruments.At present,the guidelines adopted by the International Accounting Standards Board are complex and difficult;in some cases,the results of accounting judgments and legal decisions are different;different rating agencies use different methods to divide financial instruments and get different financial leverage;the current criteria also led to the equity classification of the pro-cyclical issues and so on.Based on the above facts,many organizations including the International Accounting Standards Board,the European Financial Reporting Advisory Organization,the US Financial Accounting Standards Board have carried out a long-term,in-depth study.They put forward a number of creative methods and recommendations.However,the parties have not formed unified opinion today.This paper including a detailed research on the existing problems as well as the progress of this research.The International Accounting Standards Council of the strict obligation approach is the preferred method.The method has many advantages and is suitable as a classification standard for financial liabilities and equity instruments.At the same time,this approach does not solve all the existing problems.Some work,like the definition of accounting elements,remains to be further studied.