Research On The Division Of Financial Liabilities And Equity Instruments

In 2018,the Hong Kong Stock Exchange introduced a number of favorable policies for company listings,which caused a large number of mainland companies to choose to list in Hong Kong.It is not difficult to find out from the prospectus of these companies that the loss of changes in the fair value of convertible redeemable preference shares is the main item that caused losses for many loss-making companies when they went public.Convertible redeemable preferred stocks,as a type of innovative financial instrument,have both the dual attributes of debt and equity,so its accounting treatment will directly affect key financial indicators such as the company's solvency and profitability,and may also cause investment.Counter-intuitive effect.Therefore,this article first studies the evolution of the criteria for the division of financial liabilities and equity instruments,and then uses Xiaomi as a case to explore the accounting treatment and economic consequences of convertible redeemable preferred shares.Finally,some Suggestions are put forward for enterprises,standards and capital market.First,this article explains the concepts of debt and owner's equity from a variety of theoretical perspectives,and according to the relevant regulations of International Financial Reporting Standards,US Generally Accepted Accounting Standards,and Chinese Business Accounting Standards,respectively,from their historical changes and division principles Theoretical analysis of the division of financial liabilities and equity instruments was conducted in other aspects,and the principles and formulation directions of different criteria were comprehensively compared.The size of China's preferred stocks has been increasing since 2014,and has grown even more rapidly in recent years.The redemption and conversion characteristics of preferred stocks have an important impact on their classification.Secondly,this article takes Xiaomi as an example,and introduces the terms of preferred shares when it issues preferred shares from the aspects of scale and design of the terms.At the same time,it also analyzes the impact of Xiaomi's preferred shares accounting method in detail.The main reason why the Xiaomi Group incurred significant losses was that after the convertible redeemable preference shares were recognized as financial liabilities,the company's valuation was greatly increased,and the financial liabilities also had a higher fair value.Under international accounting standards,although the measurement of financial liabilities at fair value can clearly show the changes in liability obligations,international accounting standards account for changes in the fair value of financial liabilities formed by rising company valuations in the current profit and loss.The company suffered huge losses.In fact,under international accounting standards,the accounting treatment of convertible redeemable preferred shares is not in line with economic substance,which has caused the company's profit and loss and net asset information to be seriously distorted.In order to protect the interests of investors,the company decided to disclose non-IFRS performance indicators to the public.However,companies often disclose accounting information that is not authoritative and lacks comparability,so users will be more confused when faced with such financial information.At the same time,many companies have suffered serious losses due to changes in the fair value of convertible redeemable preference shares,which has affected their listing on the Chinese capital market.In order to solve the above problems,this article finally puts forward countermeasures and suggestions from the three aspects of enterprise,standard and capital market.Suggestions for improvement at the enterprise level: The first is to use fair value options cautiously;the second is to improve information disclosure.Suggestions for improvement at the level of standards: The first is to introduce “temporary equity” items based on entity theory and generally accepted accounting standards in the United States;the second is to propose new principles of division based on international accounting standards and the latest “Discussion Draft” The third is strict information disclosure requirements.Suggestions for improving the capital market: Multi-dimensional performance evaluation indicators can be used.