Reflecting Purchase Accounting Principles And Financial Reporting Goals

Along with the economy unceasing development, there is a huge demand of financing due to the further strengthen and expand of enterprises. Many companies meet the demand by public listing. However, considering the complex procedure of auditing and the high-cost of going public comprehensively, reaching the goal of backdoor listing by reverse takeover to capture the command over public company becomes a rational choice of many enterprises.The shell firm undergoes a change in its original nature. Previous to reverse takeover, the comprehensive business of the shell may lose key competitiveness or may be at a standstill. After that, the parent company transfers new assets, liabilities and business to the shell firm which is booming into life. The listed company at present is very much different from that of the past. Being an information system, how accounting reflects this change and reports the situation of the new listed company for future financing becomes a study of accounting scholar.This paper uses the research method which integrates theory with practical research methods and normative research with case studies, in order to realize the comprehensive and thorough analysis and discussion, method of comparison is punctuated. This article attempts to integrate three issues, reverse purchase, financial statement goal and reporting entity. Reverse purchase, as a way of business mergers and acquisitions in the capital market, needs certain accounting treatment to reflect this transaction, reflecting effect is measured by financial statement goal, the goals will involve the definition of reporting entity. Reverse purchase as a special corporate mergers and acquisitions, will involve the preparation of consolidated financial statements and individual financial statements. The issue of reporting entity is more prominent.After reverse purchase, the parent company still exists as a legal entity. Being a continuous financing platform, it should disclosure financial information to capital market to realize financing purpose. Seeing that the company involved in reverse purchase owns an inferior business state before the transaction, some enterprises are under sustained losses, expecting to get business performance improvement by reverse purchase. Benefitting from reverse purchase, the listed company at present is very much different from that of the past, which could be analyzed from the following two aspects.Individual financial statements level, the parent company is injected with a high class equity investment or assets group by means of issuing additional shares. According to the current domestic accounting standards, equity investments should be measured at fair value, the main changes before and after reverse purchase are that the parent company increases the long-term investment to legal subsidiary.Consolidated financial statement level, a new legal relationship between parent and subsidiary companies is formed after the merger. The legal parent should take the new subsidiary into its consolidated financial statements. However, due to the characteristics of the reverse purchase, after the merger, the actual controlling shareholder of the newly formed reporting entity is the original shareholders of the legal subsidiary. In accounting, from meeting the information demand of the new controlling shareholder point of view, the legal parent is the acquired and the legal subsidiary is the acquirer. The main assets, liabilities and the corresponding business in the consolidated financial statement provided by the original company listed are essentially held by the legal subsidiary. The consolidated financial statement should reflect the changes of the main assets, liabilities and business. Reporting principles and direction to meet the information demand of the new controlling shareholder are not the same with that of the other information users, which no doubt contradict with the claim released by IASB and the FASB that the main report (draft) have to meet the demands of the available and potential equity investors, lenders and other information resource providers. Based on these understanding, this paper analyzes the relevant international norms and domestic norms, and practices in the handling of these cases.In addition, accounting treatment on whether reverse purchase constitutes a transaction is different according to domestic regulations. Relative concepts and judgmental difficulty of transaction are introduced.There are 6 chapters. Chapter 1 is introduction, which introduces research background, significance, train of thought. Chapter 2 introduces concerned concepts, including reverse purchase, the goal of financial reporting and transaction to lay the groundwork for the comprehension of the following content. Chapter 3 briefly introduces the relative accounting regulations and treatment of reverse purchase at home and aboard. Besides, subtle differences are contrasted. Chapter4 deeply analyzes the accounting treatment of practice reverse purchase in order to explore the methodology reflecting the original nature of economic transaction, including the practice treatment before the release of accounting principle explanation 2008, the change of accounting treatment methods during the constant improving procedure after the release and the contrastive analysis of various means. Chapter 5 is case analysis. Based on the case of Rong An real estate backdoor * ST Cheng Gong, supported by Jiangsu Sha Gang Group backdoor * ST Zhang Tong (600741), the differences of accounting treatment methods on business combination and the differences of financial reporting are studied. Relative thinking and suggestion are proposed. Chapter 6 is conclusion, the views and comments of writer are suggested by analysis and conclusion. Meanwhile, the innovation and insufficiencies of the thesis are addressed.