Study On Accounting Treatment And Economic Consequences Of Perpetual Debt Financing

As an innovative financing instrument,perpetual debt has developed rapidly in China despite its short history.Because of its advantages such as rich forms,flexible clause settings,and the ability to reduce the level of book liabilities by including equity,it has been favored by more and more companies,in the era of deleveraging and stabilizing leverage.However,compared with the rapid development trend of perpetual debt,its accounting treatment has not been timely followed up due to its complexity and difficulty.Perpetual debt was born in 2013 in China,and the relevant accounting standards were introduced in 2014 and revised in 2017.Although they can provide principled guidance and norms for the accounting treatment of perpetual debt financing,they generally lag behind the development of perpetual debt and lack of special provisions and detailed rules.This has caused a series of practical problems,which have given birth to and encouraged enterprises to hide the debt level and beautify the financial status by using perpetual debt.In this regard,the Ministry of Finance issued the “Regulation on Perpetual Debt-related Accounting Treatment” in 2019,which made more detailed specifications on the accounting treatment of perpetual debt,and its applicability and effectiveness are subject to practical analysis and testing.In view of this,this paper discusses the accounting treatment of perpetual debt financing in China and its economic consequences.It mainly focuses on the three issues of how the perpetual debt financing should be accounted for in theory and what are the corresponding economic consequences,what common accounting problems exist in practice,and how effective is the new accounting regulation of perpetual debt.To this end,this paper adopts the research idea from surface to line to point.Firstly,based on the principle of distinguishing financial liabilities and equity instruments,combining with the concept of perpetual debt and related accounting regulations,this paper makes a theoretical analysis on the financing accounting treatment and its economic consequences.Secondly,the practical discussion is carried out.Through relevant statistical analysis,this paper explores the financing status of perpetual debt in China and the common problems in its accounting treatment,and further explores relevant practical problems and the application of the new accounting regulation of perpetual debt by case analysis.Finally,combining with theoretical research,practical statistical analysis and case analysis,this paper analyzes the causes of the practical problems in accounting treatment of perpetual debt financing and puts forward specific suggestions from the perspective of standards and norms.As a result,this paper finds that there are three common problems in accounting treatment of perpetual debt financing for Chinese enterprises:(1)lack of judgment basis and explanation for accounting treatment;(2)judgments focus on form but not substance;(3)the relevance and compounding effects of clauses are not carefully considered.The new perpetual debt accounting regulation issued in 2019 can solve the existing practical problems to a certain extent,but it still has large ambiguity and subjective judgment space.In this regard,this paper puts forward three normative suggestions: regulating the innovative development of perpetual debt,accelerating the improvement of relevant accounting standards,and strengthening the disclosure of perpetual debt financing.