Study On The Problems And Improvements In The Equity Method Of The Long-term Equity Investment

With the development of the market economy,the obvious advantages of equity investment in promoting the optimization and combination of factors,rational allocation of corporate resources,and the company's development strategy are increasingly evident,and it has gradually become an effective way for enterprises to respond to market competition and achieve development and growth.The increasing frequency of investment activities and the diversification of investment forms have made the situation of equity investments among enterprises more and more complex.As a result,the accounting and reporting problems about these matters have also gradually received more and more attention.Therefore,the regulation of equity investment accounting is particularly important in current economic environment.As we all know,in China,the equity method is used as a daily accounting method for the subsequent measurement of long-term equity investments,but also used as a method of consolidation for the preparation of consolidated financial statements.From 1992 to 2014,the Ministry of Finance of the People's Republic of China revised and improved the relevant accounting regulations for long-term equity investments for many times.In addition to the more explicit restrictions on the scope of application of the equity method,the relevant provisions of its accounting treatment is also gradually clarified and concrete.However,in this seemingly “improving” criterion,there are still many problems that cannot be overlooked.As for the application of the equity method as a daily accounting method,the theoretical circle in our country has been constantly controversial.Some scholars have even suggested that the bookkeeping behavior under the equity method is mostly lack of legal basis,and its accounting results violate the original intention of accounting.This paper takes this as an entry point to study the equity method.By combing the use of the equity method in foreign accounting standards and China's accounting regulations,and combining “accounting to reflect the theory of economic essence” and “the theory of economic consequences”,this paper points out that there are a series of problems in the measurement of equity investment when the investment enterprise use the equity method as a daily accounting method,such as the unpredictable fallacy in the adjustment of the initial investment cost under the equity method,it is unreasonable to include the changes in other equity of the investee in the “capital reserve” of the investment enterprise,the assets identified under the equity method do not meet the definition of assets,and the information provided is contrary to “reliability” and “prudence”.In order to demonstrate these issues,this paper takes the “Luxin Venture Capital Group Co.,Ltd.” and its associated companies as an example.When analyzing the causes of the equity method's problems,this paper discusses the essence of equity method,and points out that the essence of the equity method is a consolidation method,so it should not be used in routine accounting.Based on these,this paper proposes that: the use of the equity method should be abolished in individual statements,and the investment enterprise should use the cost method to account for the investment of associates and joint ventures,and establish a daily reference book to dynamically tracks the changes in the net assets of associates and joint ventures;at the same time,the investment enterprise should add the “equity method schedule” and the “merge condition analysis table” in addition to the consolidated financial statements,to further disclose the investor's equity changes in the joint ventures and joint ventures.This paper discusses the problems existing in the equity method,and proposes reasonable suggestions after analyzing the reasons.The purpose of this paper is to provide certain reference value for the accounting of equity investment in our country and the application of the equity method in practice.