Research On Reverse Acquisitions Accounting Standard

Backdoor listing is a kind of indirect way to go public. Compared with IPO,backdoor listing has no need to take the high sponsorship fees and the IPO window,and the process is relatively quick. Reverse acquisition is one of the most importantways to achieve backdoor listing. As several switch-off ipos and new listings reviewtighter, capital market IPO dammed lake phenomenon are frequent in our country,Reverse acquisition becomes a hot topic in the capital market. In2008, our countrycapital market appears a climax of reverse acquisition and the accounting standardregulate the reverse acquisition transactions for the first time. After that, accountingstandards of reverse acquisition is revised several times, but still not perfect. Thisleads to that the accounting treatment of reverse acquisition is not unified, notstandard, and even cover up the truth of the trading, which seriously harm the interestsof the investors and the stability of the whole capital market. It is necessary toimprove the accounting standards to regulate reverse purchase behavior and protectthe long-term interests of the capital market participants.Reverse acquisition accounting standard is mainly used in the application scopeof backdoor listings. There are two kinds of method to prepare the consolidatedstatements, reverse purchase method and equity trading principle. If the acquiree isbusiness, reverse purchase method is useful, otherwise the equity trading principle isthe right way. Under the condition of the listed company does not constitute abusiness, the acquiree is actually a "shell" company. The purpose of the buyer to pay ahigh price to buy a shell company is very clear, just to get listed company "id". Themerger premium is actually the cost to buy a shell. For the same reason, when theacquiree constitute business, under reverse purchase method, the goodwill actuallyalso contains "shell value" and it is not a real goodwill. Afterwards, the goodwill willface big write-down. The main difference of reverse purchase method and the equitytrading principles is the way to approach "shell resource value".This is the coreproblems of the accounting standards. Through analysis, the presence of such inconsistencies makes differentaccounting consequences, and thus brings different economic consequences of themerger subject. This is only because the different accounting treatment of the samekind of transactions. This is unreasonable. The accounting standard should stand onthe basis of neutral, considering the economic consequences and unify the approachof "shell value”. By analyzing the three possible solutions to solve the aboveproblems, the last one is the best one. It is to recognize the “shell value” as an asset.This will not only be able to solve the guidelines to deal with the problem ofinconsistent "shell value”, but also effectively avoid the drawbacks of the other twomethods. Besides the high" shell value "on the report also can effectively inhibit theirrational backdoor listing behavior and contribute to the healthy development of thecapital market.