Study On The Improvement Of The Equity Method Of The Long-term Equity Investment

From the embryonic stage of the capital market in the 1980 s,China's capital market has undergone several stages of initial formation,growth and regulation,and rapid development.With the rapid growth of our country's economy and the continuous development of the market,investment has gradually become one of the company's important economic activities,more and more companies have chosen to expand their businesses through investment,which makes the development of the company show a diversified growth posture,therefore,it highlights the importance of accurate accounting measurement of investment activities.In 2014,the Ministry of Finance revised the Accounting Standards for Enterprises No.2-Long-term Equity Investment,which provided theoretical guidance for this purpose.According to regulations,under the downstream transaction,investment income and long-term equity investment should be adjusted in individual financial statements.However,this transaction does not affect the current profits or losses in the financial statements of the invested company,but is reflected in the current profits or losses in the financial statements of the investment company,according to the nature of this transaction under the equity method,it can be seen that it does not affect the net assets owned by the investee,so this transaction should not affect the individual financial statements of the investment company.If the investment company needs to prepare the consolidated financial statements,the adjustment entries made in the consolidated financial statements have no practical meaning in essence.It is only the conversion between different profit and loss items that does not affect the consolidated net profit in the consolidated financial statement,so it has no practical significance.This paper will use the offset adjustment under the downstream transaction as an entry point to further discuss the theoretical defects existing in the equity method accounting and the problems in the application of the practice,and put forward corresponding suggestions for improvement.This paper combed the relevant provisions of the equity method in domestic and foreign standards,analyzes and contrasts the similarities and differences between the equity methods in domestic and foreign standards,and provides theoretical and standards support for the next analysis.Then this paper focuses on the analysis of the theoretical flaws in the application of the equity method in China and the problems in the application of the practice.The theoretical defects existing in the equity method of accounting,including the value of the recognized assets does not belong to the accounting measurement attribute,confuses the boundary between the rights and obligations of the legal subjects,lacks factual basis,does not meet the requirements of prudence,and the timing of subsequent measurement is not clear.The main problems in the application of the practice,including the adoption of the equity method is influenced by the intentions and judgments of the company's management,the company has room for earnings management,the impact on the adjustment of the initial investment cost,the investment gains and losses of the cross-shareholding cannot be objectively confirmed,and there is confusion in the offset adjustment of investment income in the downstream transactions and upstream transactions.The theoretical defects existing in equity method of accounting are mainly due to deviations in the understanding of the nature of the equity method,the failure to correctly distinguish the role of consolidated financial statements from individual financial statements,and the unsorted relationship between consolidated financial statements and individual financial statements.The problems in practice are related to the characteristics of the equity method itself,the adequacy of information disclosure,the independence of third-party intermediary institutions,and the degree of supervision.On this basis,this paper proposes corresponding improvement suggestions on the application of the equity method of the long-term equity investment from the theoretical and practical aspects respectively.