Research On Chinese Share-based Payment Accounting Issues

In 2006, Ministry of Finance firstly issued Chinese Accounting Standard No.11. Share-based Payment (shorted for as CASH in this paper) and related Application Guidance. After then, in 2009 and 2010, Ministry of Finance issued Chinese Accounting Standard Interpretation No.3 and No.4 respectively, to give further rulings of accounting treatments of Share-based Payment Plans. From all aspects, though with a relatively short history, Chinese share-based payment accounting standards had already reached quite a high level.However, after 2010, stock incentive plans in China have entered in to a new era with a pretty high speed and wide range of application. On these grounds, what is the status of share-based payment transactions now in China, can related standards give wide and sound rulings of share-based payment plans in practice? How is the application status of Chinese share-based accounting standard, are any changes to the standards to make them coordinated with the practice necessary? In order to answer these questions, I have gathered related materials, pondering on these issues using normative research methods, and came up with the main points and conclusions in this paper.The main body of this dissertation is comprised by five chapters. Chapter 1 to chapter 3 is prolegomenon, general description of share-based payment, and accounting treatment criteria of share-based payment transactions home and abroad. Chapter 4 is the main part of this passage. In the first part of chapter 4, a descriptive statistics analysis is demonstrated to illustrate the main features of share-based payment plans in China’s Growth Enterprise Board market. In the second part of this chapter, four practical share-based payment accounting issues in China are discussed with detailed analysis to each and examples from Growth Enterprise Board companies in China.The main discoveries and outcomes of my analysis of these four issues are as follows: firstly, how the grant date is determined is discussed and I find that the date when board of directors reached an agreement is often chosen as the grant date, which is reasonable after my analysis, and I support using this method to get grant date. Secondly, the accounting treatment of share-based payment arrangements with the same grant date but different vesting dates was discussed. After deliberate research, I found that this kind of share-based payment arrangement is widely used in practice in China, but some companies do not account for it under CAS 11 and related security supervision norms. The third topic is how to determine the fair value of equity instruments. For option incentive plans, I mainly discuss information disclosure matters; for restricted stock plans, I had picked out four main valuation techniques used in practice and given my own opinions towards the choice among different techniques. The fourth issue is accounting treatment of cancellations of share-based payment plans. Four main accounting treatments of this issue were displayed with detailed examples in practice and related analysis. The outcome of the analysis is that current CAS11 and related standards could guide the accounting treatment of share-based payment arrangements in practice in common. However, these standards could lead to some unreasonable outcome in some situation, the example of Walvax Biotech (300142) was given to illustrate this phenomenon.The last chapter is Chapter No.5, research conclusions and advice. Firstly, after comprehensive analysis of all the contents above, I come up with 8 main conclusion of this paper. Then, with regard to the four main issues discussed in chapter 4, I advice to make detailed guidance in new Chinese Accounting Standard Interpretation related to the accounting treatment of share-based payment arrangement with the same grant date but different vesting dates. Also, I argue that disclosure of how to determine the fair value of equity instruments should be enforced, and a new system to determine fair value of equity instruments as well as to supervise the determination process should be built. At last, for the cancelation of share-based payment arrangements, specific advice was made to help the standard become more neutral, building a register and record system regarding cancelation of share-based payment arrangements is also highly recommended.