Research On Classification Of Financial Assets Issues

The introduction of the term "fair value" in the new CAS (China Accounting Standards) which published by the treasury department in2006, is a great breakthrough in the process of making accounting principles in China. Besides, according to the provisions of the new accounting standards, the financial assets have been divided into four categories. However, this classification is not perfect. As a matter of fact, in new codes, the classification standard and definition of both the trading financial assets and financial assets available for sale which are measured by fair value are quite vague. And what is worse, the results of profits will be varied as changes in the fair value during holding periods of both the above assets are put in income statement and change statement of owners’ equity according to the new codes. As a result, entrepreneurs tend to take advantage of these flaws in new standards to manipulate profits based on their earning management motivation which eventually results in twisted accounting information in financial markets.In order to remove problems mentioned above, improve the quality of accounting information and inhibit the earning management phenomenon, treasury department published the "Interpretation of Accounting Standards No.3" in2009, which requires presenting other comprehensive income in the income statement. However, whether such changes in accounting standards have led to various problems in financial asset classification? Whether entrepreneurs have taken advantage of the flaws in financial asset classification to conduct earning management? Whether other comprehensive income has influence on the financial asset classification, and whether this influence will inhibit earning management which is incurred by financial assets classification? All these questions are worthy of studying.This article aims to provide clues to answer the above questions. Through studying the classification of the financial assets, especially through study of the presentation of other comprehensive income, I hope to reveal problems lie in the current financial assets division. And furthermore, I would like to reveal whether any new problems occur in financial assets division under the presentation of other comprehensive income, as well as whether those problems will prevent entrepreneurs from earning management behaviors. Results will be used to test the validity of the new accounting standards and at the same time, provide evidence and suggestions to relevant researchers and principle makers. Therefore, the study in this article is of great significance in both theory and reality.This dissertation consists of six parts:Part1, starts with the background of this dissertation, then through analyzing the problems lie in financial assets classification and the influence of the presentation of the other comprehensive income under the newly published standards, brings in the research question and states the significance of this research.Part2is about the literature review. This part reviews and concludes the both native and foreign literature regarding the financial assets classification, relationship between financial assets management and earning management, and other comprehensive income researches. And find evidence to support my own study.Part3concentrates on the theoretical analysis. This theoretical analysis based on the principles in new accounting standards and relevant findings concerning the financial assets classification and the presentation of other comprehensive income. And also lay theoretical foundation to the following parts.Part4states the status description and data analysis. The status of the financial asset division and other comprehensive income will be summarized and illustrated in this part. By modeling and data analysis, the relevance between other comprehensive income and financial asset division will be demonstrated. This part plays a supportive role in the following analysis.Part5concerns the status analysis and case study. Based on the results of status description and data analysis in part4, this part devotes to analyzing the status of financial assets classification and also how does other comprehensive income affect its classification. And all these will be presented by case study and the results will be helpful to provide conclusion and suggestions in the part behind. Part6concludes this study and describes its existing limitation as well as the future development.This dissertation unlike any other existing researches, which studied the financial assets classification from only one single angle, and the earning management from the financial asset itself alone. This article studies from various angles which combines the changes in the new accounting standards with multiple methods, including status analysis, data analysis and case study, and based on the influence of other comprehensive income. Under such various-angle study, the results obtained will be more vivid and the conclusion and suggestion will be more specific in this article. In a word, this dissertation is of great creativity and innovation.The limitation in this dissertation is that the analysis of the financial asset division is based on the other comprehensive income, while there are only a few researches viewed from this angle currently. This results in a few literatures to review. When analyzing, this article only studied two financial assets which are measures by fair value-trading financial assets and financial assets available for sale, and motivation is also only concentrated on the earning management while other elements have been neglected. Concerning the data analysis, due to most work has to be done manually, so samples are only selected from listed firms in2012. This means a small sample and remains to be increased. When conducting the case study, the analysis methods and ideas are mainly from my own thoughts and attempts. Therefore it might be something imperfect and needs to be improved in the analysis process.