In accordance with the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued the revised Enterprise Accounting Standard No. 37 — Presentation of Financial Instruments on 2017/3/31, effective as of 2018/1/1.
I. Distinction Between Financial Liabilities and Equity Instruments
An entity shall classify a financial instrument, or its components, as a financial asset, financial liability, or equity instrument at initial recognition based on the substance of the contractual terms and the definitions of financial assets, financial liabilities, and equity instruments, rather than solely on legal form.
Core Differentiation Principle
- • Cannot avoid settling by delivering cash or another financial asset unconditionally → Financial liability
- • Exchange a fixed number of the entity's own equity instruments for a fixed amount of cash or other financial assets → Equity instrument
II. Compound Financial Instruments and Treasury Shares
Hybrid financial instruments
For compound financial instruments issued by an enterprise that contain both a liability component and an equity component, the fair value of the liability component shall be determined at initial recognition. The fair value of the equity component is then calculated by deducting the liability component's fair value from the compound instrument's total fair value.
Treasury Stock
Consideration paid and transaction costs for repurchasing own equity instruments shall reduce shareholders' equity; no financial asset shall be recognized.
III. Risk Disclosure
- • Credit Risk Disclosures: Measurement of Expected Credit Losses, Credit Risk Management Practices, Collateral and Credit Enhancements
- • Liquidity Risk Disclosure: Maturity Analysis of Financial Liabilities
- • Market Risk Disclosures: Sensitivity Analysis for Exchange Rate, Interest Rate, and Other Price Risks
Regulatory Document Attachment
CAS 37 — Presentation of Financial Instruments (Amendment 2017) (PDF)