Research On The Effect Of New Accounting Standards Of Financial Instruments On Chinese Listed Banks

Globalization of economy has led to integration of capital market and financial market. Meanwhile, the emergence of abundant idle fond in the world, the frequent flow of capital between different countries and the gradual elimination of trade barriers have led to significant development of financial instruments both in varieties and transaction volume in China. The emergence of large numbers of financial instruments requires accounting disclosure to not just adopt international accounting language, but also be more public and transparent. Yet due to lack of development in accounting standards concerning financial derivatives instruments in China, especially in the banking industry, there has been no uniform accounting standard of disclosure, the absence of which brings inconvenience to financial information users. In recent years, there has been an upsurge triggered by a series of listings of many commercial banks, particularly the state-owned joint-stock banks such as ICBC (Industrial and Commercial Bank of China), BOC (Bank of China), and CCB (China Construction Bank). Under such circumstances, in February 2006, the Ministry of Finance issued a series of new accounting standards concerning financial instruments with an aim to standardize the financial instruments accounting practices, strengthen financial supervision and accounting regulation of listed banks, protect the legitimate rights and interests of a growing number of investors, and thus promote long-term and steady development of the financial market of China. The new standards provide detailed criteria on the classification, recognition, measurement, presentation and disclosure of financial derivatives instruments, emphasize dual disclosure (qualitative and quantitative) of both financial instruments transactions and the relative risks, and thus fill the substantive gaps between the standards setting and the actual operation in practice. The new standards made reference to IAS32 and IAS39, which are in accordance with the international accounting standards. It's a real reform and innovation based on the actual accounting environment, the financial environment and regulation level of China. Especially with wide application of the fair value measurement in the banking industry, it contributes to multiple changes of the commercial banks both in the system and the internal operation. The issue of how listed commercial banks resolve the challenges and embrace the opportunities facing new criteria has become an urgent affair. In order to gain long-term development and boost investors' confidence, the most pressing task of listed banks is to adapt themselves to the new standards of financial instruments.This thesis adopts two major methods to describe and analyze the author's viewpoints. The normative research method is based on comparisons between standards and case analysis which takes medium-term financial reporting of five listed banks in 2006 as samples to compare. First of all, the author reviewed the relative literatures and famous viewpoints to display the historical process of theory development. Then, by comparing the detailed entries including classification, recognition, measurement, presentation and disclosure of financial instruments between the new standards and the international accounting standards, the thesis aims at analyzing the reasons for the resemblance and discrepancies between them, as well as how the new standards surpass the ones existing in financial accounting system of China through the comparisons between them. Thirdly, the thesis analyses the effect of new financial instruments standards on listed commercial banks, and focuses on the impact that the broad application of fair value measurement in banking industry has on financial information disclosure of the listed banks. At last, by case analysis on medium-term financial reporting of five listed banks in 2006, the author brought forward some problems concerning relative disclosure of financial instruments in five samples, meanwhile, the thesis also stresses the author's suggestions on the strategies that listed banks should take when facing the opportunities and challenges from the new accounting standards of financial instruments.There are some innovations in the thesis.1. Innovation in research perspective.This thesis adopted two major methods to describe and analyze the author's viewpoints, i.e. the normative research method based on comparisons of standards and the case analysis which takes medium-term financial reporting of five listed banks in 2006 as samples to compare. But, most of the literatures have focused on the research method.2. Innovation in research route.According to the objectives of using financial instruments, the listed banks should emphasize of the relative information disclosure and stress the relation between hedge instruments and issues under hedging. As the main objective of using financial instruments is"avoiding risk", the state-owned listed banks should emphasize the disclosure which could influence credit risk, market risk, interest risk and managing risk. On the other hand, the other listed commercial banks should pay more attention to the disclosure about earnings and losses from investment of financial instrument, for return on investment is the main objective of using financial instruments for them.3. Innovation in research content.The state-owned listed banks is taking on an important task, which is preserving the value of state-owned capital, core capital and most part of public's deposit fund in China because of some historical reasons. That is the typical difference between state-owned listed banks and other listed commercial banks. So, considering the differences among users of financial statements and the viewpoint of the state-owned listed banks, the thesis gives the suggestion they should focus on both of the accounting objective theories:"decision-usefulness"and"management responsibility of agency".Meanwhile, every listed bank must emphasize on information disclosure which involves managing rank as a significant task to avoid the"ethical risk"from management.The limitations of the thesis are as follows:1. Because of the narrow knowledge of finance and the lack of samples, there are some limitations in effect analysis of new financial instruments standards on listed commercial banks. Meanwhile, about the strategies listed banks should take when facing the opportunities and challenges from the new financial instruments standards, the author's suggestions need to be proved during the practice.2. During the process of material collecting, the author failed to find out the official transaction document of IFRS7, so, there are some limitations in detailed disclosure between the new devolvement of international accounting standards and the new financial instruments standards of China.I attribute the above limitations to my uninspired academic researching my limited knowledge.