The Research On The Classification Of Financial Liabilities And Equity Instruments

After the18th National Congress of CPC and the3rd Plenary Session of the18th CPC Central Committee, China has accelerated the pace of the construction of multi-level capital market and a large number of financial innovation emerged. In the past two years, with the development of innovative financial instruments, more and more financial instruments that have characteristics of both stocks and debts have been issued. These instruments make the boundaries between financial liabilities and equity instruments become increasingly blurred. A financial instrument should be classified as a liability or equity, will not only directly affect financial indicators such as the asset-liability ratio, and thus affect the accounting profits. Therefore, the correct distinction between financial liabilities and equity instruments is not only the objective requirements to accelerate financial innovation, but also the realistic needs to standardize the accounting regulation and reduce the business accounting arbitrage space.The main body of the thesis takes the normative research method, which contains specifically the conclusion research and comparative research. The second chapter introduces the basic concepts of debt and equity and lays the theoretical foundation of the thesis, summaries the literature relevant to the distinction between liabilities and owners’equity in the two perspectives of "owner’s view" and "entity’s view", thus analyzes the different perspectives’impact on distinctions between financial liabilities and equity instruments. The third, fourth and fifth chapter respectively researches on international accounting standards, U.S. GAAP accounting standards and China’s accounting standards on the distinction between financial liabilities and equity instruments, conducts normative research on the history, principle and process of the standards on distinctions between financial liabilities and equity instruments, and reviews and comments on their advantages and disadvantages. In addition, with the use of comparative analysis, the thesis compares the similarities and differences between the three standards, and outlook the convergence trend of the standards.The last chapter conducts case studies on the practice of preferred stock and perpetual bond, in order to deepen the understanding of the application of the standard. The controversial "mandatory dividend" policy and the "interest jump" mechanism was discussed and concluded:the so-called "mandatory dividend" policy is encouraging provisions rather than mandatory, whether the "mandatory dividend" policy exists and forms the payment obligation should be referred to the articles of association;"interest jump" mechanism is not currently recognized as a constructive obligation, but may in the future be regarded as a constructive obligation and thus the relevant bonds will be classified as financial liabilities.