Reconstruction Of RPT Information Disclosure On Listed Companies In China

Violation of regulation problems by listed companies in China is mostly associated directly or indirectly with RPTs (related party transactions). RPTs not only viciously harm the interests of listed companies themselves, but also seriously damage the interests of small shareholders, affect the efficient allocation of scarce resources, and increase the market operating costs and risks, which will eventually shake the foundation of the capital market itself. Therefore, it is of great importance to study and to standardize RPTs by listed companies, and to strengthen the relevance of accounting information disclosure of RPTs as well. This dissertation will analysis from a new viewpoint based on CPU (common price understanding). Firstly transactions are to be recognized and classified, then information disclosure on listed companies is to be reconstructed, so as to improve the quality of accounting information disclosure, to protect the legitimate rights and interests of small and medium investors, and to maintain prosperity and stability of the security market. Standard research, analytical studies and experimental research methods have been employed in the research of this dissertation.1. Research contents of the dissertationThis dissertation focuses on problems associated with RPTs by the listed companies and centers on how to improve the information disclosure mode of RPTs from five aspects:1.1 Problems found in the current information disclosure of RPTs. Domestic or foreign research on the issue of RPTs confined to the distinction between RPTs and general trading by the definition of related party. Therefore, the study about disclosure of RPTs has the following problems:①No distinction, that is no transaction specificity to distinguish between RPTs and ordinary transactions;②No immediacy, as information of RPTs was disclosed only in the off balance sheet resulting in weak binding force to the related companies and inadequate disclosure of related information;③Making RPTs unrelated to avoid information disclosure of RPTs. If a valid distinction in theory between RPT and general transaction can not find, the quality of information disclosure will not be improved to the extent to reduce the harm caused by RPTs. 1.2 The experimental and theoretical proof of CPU. It is often said "The price of RPTs is clearly contrary to the normal price of transaction". What price does this "normal price of transaction" refer to? How to quantitative it? How does it become a common understanding? Answers to all these questions have to be sought from the basic theory of economics. Based on the introduction on and analysis of the deficiencies of the traditional theories related to RPTs, the concept of CPU was firstly proposed and experiments that can form and cannot form CPU were designed and finished. From the results of the experiments, a new theory-the Theory of CPU-had been proposed and the theory was then further proved by theoretical model and deduced by strict mathematical logic.1.3. Analysis on recognition, measurement and disclosure of RPTs. Results from traditional analysis on recognition and measurement of RPTs had been analyzed again with the theory of CPU and further demonstrated by experiments. In addition, a comparison between new guidelines on the disclosure of RPTs with the old criteria and the international accounting standards was carried out. Some domestic scholars suggested some improving measures on RPT information disclosure by reference to the reasonable parts of the international accounting standards and other national accounting standards. An analysis on these measures has been undertaken. Though these measures have shown some positive functions, but can not resolve the unrelated problem to RPTs.1.4. Reconstruction of RPT information disclosure. Through describing the aim of the new model of RPT information disclosure, the basic framework of the new model, including the design of the new accounting model and accounting example, has been proposed. In a traditional debit and credit accounting system, a new element of trading classification is added that can be used to determine the type of the economic business. According to their characteristics, the transactions will be recorded in either categoryⅠor categoryⅡ. A "ClassⅡtransactions statement" has been proposed to add in the original basis of accounting statements to avoid the loss of transaction property and the confusion of price comparability resulted from the merger of various exchange transactions in original financial statements, so as to achieve the purpose of enhancing the quality of accounting information.1.5 Some policy suggestions on improving financial information disclosure of the listed companies. How to publicly increase the transparency of financial information disclosure of the listed companies and thus minimize the harm associated with the RPTs. The government should provide more information services; enhance the disclosure of the results of the market operation rather than just the release of the expected market operation. Some measures have been suggested as follows:①Formulate strict regulations in regard to the disclosure ways of the second category of enterprises;②Reduce the depth and intensity of government intervention in capital markets;③Comprehensive management on disclosure of RPTs by listed companies and on accounting information quality;④Establish electronic management records on information disclosure for each listed company;⑤Create a harmonious environment that stimulate honest operation for listed companies;⑥Improve shareholder derivative litigation.2. The main conclusion of the dissertation2.1 RPT information disclosure must meet requirements of distinction, immediacy and timeliness. As to the issue of relevant disclosure of RPTs in the construction of information disclosure system of listed companies, a general principle must firstly be set up that can be used to judge if the content, form, perspective of the RPT information disclosure is necessary and sufficient. Our study shows that this general principle is that the relevant disclosure of RPTs must meet three requirements that are:①distinction;②immediacy; and③timeliness. Among the three requirements that relevant disclosure of RPTs must meet, distinction is the most critical one as it determines whether and how to disclose directly and dynamically. The reason why the basic research on how to form CPU has been carried out is that if the CPU does not exist in the market, then how it is possible to distinguish between fair and non fair RPTs. Of course, distinction will not be able to meet. If the prices of the commodities provided by the listed company can form the CPU, investors should take the responsible for their reading, identifying, and determining the financial information of the listed companies. If, on the contrary, the prices of the commodities provided by the listed company can not or is hard to form the CPU, accounting standards and regulations should require the listed company to distinguish those RPTs from other transactions in order to remind the investors to concern and to ascertain the substance of those transactions and the authenticity of the corresponding financial information.2.2 Sufficient condition of CPU has been gained through a rigorous proof. CPU can arise in the market under the condition that the trading goods possess the fowlloing 5 prerequisites in the series of transactions of the same trading goods (rather than gifts or looting):①Sensitivity-any participants draw on advantages and avoid disadvantages;②Fairness-when some agents can succeed (possibly accidentally) to sell or buy at higher price, other agents can follow them (not simultaneously) in later trades;③Pureness-all agents trade in a free market and no one has the eternal trading privilege in the market and the price of goods are absolutely determined by the situation of supply-demand;④Tend-stable-the changing of supply-demand situation trends to be stable;⑤Regularity-the changing of supply-demand situation gradually disappears. That is to say that the CPU of a trading good is obtainable asymptotically rather than immediately.2.3 Based on the basic research of CPU, transactions must be classified into either class I or class II and the model of information disclosure reconstructed in order to improve the quality of financial information. According to the basic study on how to form CPU, the formation of CPU needs some conditions. As the conditions are not sufficient, the CPU of some trading goods is not easy to form. In order to prevent confusion of information, the reports need improving that can provide the necessary protection for investors to understand the operation of listed companies. It has been deemed that the transactions have to be firstly recognized and classified before financial statement and information disclosure that meet the above-mentioned three requirements can be compiled. All transactions can be divided into either Class 1 or Class II.3. Innovation Points of the dissertationIn this dissertation the theoretical study on consensus of trading goods price understanding is conducted through experimental and analytical research methods, and new perspectives on accounting recognition and disclosure format of reporting are raised at the same time. With some innovations and breakthroughs shown as follows:3.1 The theory of CPU proposed and proved. Through analytical and experimental research methods, designed and completed the experiment about the formation of CPU. Conditions that are required for the CPU formation of trading goods have been uncovered. Accordingly it has been found that a CPU is easier to form in traditional trading goods and the corresponding financial data are easier for "Reading." New methods of financial information closure is required to increase their "notes" for RPTs (including unrelated RPTs) that are hard to form corresponding financial data during their CPU formation of trading goods.3.2 To add a table of "Class II transaction statement" for better information disclosure. Loss of transaction attribute and confusion of price comparability resulted from the merger of various transaction data are avoided by the approach to add a table of "ClassⅡtransaction statement" to the original basis of accounting statements, so as to enhance the quality of accounting information disclosure. This "ClassⅡtransaction statement" will function as a note to the background of the original data in the accounting statements. For example, when the listed companies transfer benefits to or mine interests from themselves through an open or hidden RPT, the transaction amount for Class II will significantly increase.3.3 Based on the traditional debit and credit accounting method, newly increase an element described as "transaction classification", namely belonging to either Class I or Class II of the transactions are to be determined according to their transaction characteristics. Then the corresponding debit and credit accounting rules are not only two-dimensions of Debit/ Credit; but three-dimensions of debit, credit and a new dimension "class" described as Debit/ Credit/Class. In other words, three-dimensional coordinates rather than the old way of two-dimensional coordinates are to be used to represent and to describe a transaction. This improvement not only improves the quality of information disclosure on RPTs, but also provides a new feasible ideas to transform information of financial instruments accounting, of human resource accounting and of social responsibility accounting from off-statement to the inside of the statement.