Study On Application Of Equity Method When Investor’s Shareholding Ratio Was Reduced By Investee’s Share Issue

In November2012, the International Accounting Standards Board (IASB) published the ED/2012/3Equity Method:Share of Other Net Asset Changes (Proposed amendments to IAS28Investments in Associates and Joint Ventures)(’the ED’).The proposed amendments intend to specify that an investor should recognize, in the investor’s equity, its share of the changes in the net assets of the investee that are not recognized in profit or loss or other comprehensive income (OCI) of the investee, and that are not distributions received (’other net asset changes’); and the investor shall reclassify to profit or loss the cumulative amount of equity that the investor had previously recognized when the investor discontinues the use of the equity method.China Accounting Standards Committee, Accounting Standards Committee of Germany, United Kingdom Financial Reporting Council etc. support the ED, but European Financial Reporting Advisory Group, Canadian Accounting Standards Board, Accounting Standards Board of Japan, Asian-Oceanian StandardSetters Group, Australian Accounting Standards Board, Hong Kong institute of Certified Public Accountants etc. are against the ED. In2008, The Financial Accounting Standards Board (FASB) required the equity method investor shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment. Any gain or loss to the investor resulting from an investee’s share issuance shall be recognized in earnings.In2006, the Ministry of Finance of the People’s Republic of China published CAS No.2: long-term equity investment did not specify how investors should account for other net asset changes of investee, which resulted in diversity in the accounting practice. This thesis, based on the background, has combined the way of normative research and empirical research, to analyze the policy basis of each accounting treatment method, and explore the factors that influence the accounting policy choice of listed companies in Chinese A share market. The purpose of this paper is to provide useful information to users, accounting standards setters and regulators, etc.This paper is divided into five parts.Part1:Introduction. This part mainly introduces the background and significance, research methodology, structure and possible innovations. Part2:Institutional background and literature review. In the part, I summarized domestic and abroad accounting standards, compared each accounting treatment of investors and analyze the internal logic of each method. Then I reviewed related literature in two aspects. One is domestic scholars’research in accounting treatment of investors under equity method when its shareholding ratio in investee was reduced by whose share issuance; the other is empirical research on accounting policy choice both at home and abroad.Part3:Empirical research and analysis. In this part, I used statistical software to make the descriptive analysis, the multiple regression analysis and the mean test analysis, to test the hypothesis and expand the reason.Part4:Research conclusion and suggestion. This part mainly explained and summarized the result in Part3, and put forward suggestion and measures based on the empirical research. At last, I pointed out the deficiency of the paper.