Accounting Rules On Affiliated Companies Group Transactions

The arising of affiliated companies is the result of the Reform and Open-door Policy in China. It reflects the change of economic structures in the market place. Affiliated companies is obviously not a negligible force of modern economy with its importance ever increasing. The formation of affiliated companies is owing to certain financial purpose, e. g. to achieve predominant positions, to consolidate their market strength, to diversify operating risks, to avoid tax. In today' s market, there exists lots of group transactions, this, in one hand, is rational, but on the other hand, unreasonable group transactions will impinge the legitimate rights of other stakeholders. It also seriously affects the normal market discipline, the rights of creditors and social transaction security. Therefore, the author thinks that it' s vital and realistic to legitimise for the transactions between related parties.There are many laws and regulations that are pertinent to related party transactions, such as taxation laws, securities laws, anti-trust laws and accounting laws etc. This paper, however, is primarily about the accounting laws. It consists of four parts:The first one starts with the legal definition of related party and group transactions. It compares the legal definition of related party taken in a few typical countries like Germany, Japan, the United States, and China Taiwan. It also examines group transactions from the accounting rules' prospect, both in the context of international and domestic standards. It briefly recalls and comments upon the progression of accounting rules governing group transaction in this country.The second part unveils the root cause, from the micro-economics point of view, of related party transactions, and the demand for legitimate rules and regulations. It involves examination of the dual characters and peculiarity of the transactions, anomalies in a variety of forms and their pernicious effects to society, and hence the inevitable consequence of putting certain regulations in place.The third part refers to the regulations in different countries and comesup with a series of critical principles like: disregard of the Corporate Entity Doctrine, safeguard stated owned assets from shrinkage, disclosure over existence and substance over form, and the responsibility inversion of evidence*" all of which are popular in China and the rest of the world, which aims to hold people accountable.The fourth part examined the current accounting regulations and flaws thereon. They are unsystematic, non-exhaustive. The disclosure is insufficient, fragmented and untimely... Moreover, it refers to some good and workable practice in other countries and proposed feasible legal approaches to related party transactions in China. It mainly covers the following points: to take a more systematic and strategic approach in defining accounting rules; to police the disclosure of information on group transactions; to clarify of accounting responsibilities and auditory responsibilities; to emphasize the compensation obligation of agency bodies.