Talking about the principle of prudence in financial management and applying

Talking about the principle of prudence in financial management and applying

The principle of prudence in financial management is also called the principle of soundness. It refers to the one that has the least optimism about the impact on net income and financial status when there are several options for an accounting treatment. Be cautious in accounting treatment, fully estimate possible risks and losses, minimize and account for possible gains, and minimize risks and losses. Specifically, it is that the recognition of assets and income tends to “slow recognition”, the measurement is “lower and higher”, and the liability and expenses are confirmed in the “acquisition approval”, and the method of “negative deficiency” is measured. . Carefully reflect and deal with various factors of operational instability and risk to maintain the stable operation of the company and enhance the company's stamina.

I. Problems encountered in financial management and their countermeasures.

Article 18 of the Accounting Standards for Business Enterprises stipulates that “accounting should follow the requirements of the principle of prudence and reasonably account for possible losses and expenses”. This is a major breakthrough in the reform of China's accounting system. It fully reflects the objective requirements of independent operation and self-financing of enterprises under the conditions of market economy. With the deepening of the market economy (17) stalks, 笠 笠 氖 缦铡 . . . . . . . 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9猓?渚咛灞硐心谝韵录父龇龇?/SPAN>

1. Short-term behavior of the company.

Short-term behavior in business operations is a common problem. China's economy is a socialist market economy dominated by the state-owned economy. The state owns the ownership of state-owned assets, and enterprises enjoy the right to operate. The ability to assess a business operator usually depends only on the economic benefits of the enterprise. This may result in short-term behaviors that some business operators are not responsible for the long-term interests of the company in order to show their own performance, only to ignore the current benefits and not to be responsible for the preservation of corporate assets. The performance is mainly due to the non-distribution of the cost of the stall, the depreciation of the offer is not mentioned or less, etc., resulting in unrealistic costs, hidden losses, increased profits, increased non-performing assets, and false components of asset preservation and appreciation. Asset pricing based on the principle of prudence and the necessary preparation funds can prevent the over-allocation of corporate income and effectively curb such short-term behavior.

2. Whether state-owned assets can maintain integrity.

For a long time, the erosion of state-owned assets has been severely manifested in the low depreciation rate of fixed assets, insufficient asset compensation, and the loss of asset value from distribution channels. The relationship between enterprises and external creditor's rights and debts has become increasingly complex, and the bad debts of bad debts have increased. A lot of claims are difficult to achieve, and although they have been posted, they have caused de facto losses and so on. If it is handled according to the principle of prudence, not only will the value of the assets be fully compensated, but the loss of bad debts can also be compensated, thus ensuring the safety and integrity of state-owned assets.

3. The problem of the quality of accounting information.

Using the principle of prudence, the potential losses such as bad debts may be reasonably confirmed and reflected, so that the financial information such as accounting statements truly reflect the financial status of the enterprise, thereby improving the quality of accounting information. Because the bad debt losses that may occur are accrued through the provision of bad debts, and the deductible accounts of accounts receivable in the form of bad debts are listed on the balance sheet, and the report users can be reminded of the balance sheet. The receivables shown may not be realized, or the actual value of the asset may be lower than the reported figures. This makes the balance sheet truly reflect the creditor's rights of the company.

4. The accounting reform method should be standardized.

In recent years, in order to adapt to the development of the market economy, the state has carried out a series of reforms to the accounting system. For example, in order to enhance the vitality of large and medium-sized state-owned enterprises, the state has adopted a source of funds to appropriately increase the depreciation rate within the prescribed scope to expand enterprise equipment renewal and technological transformation; to increase the competitiveness of enterprises in the market economy, to allow enterprises to make provision for bad debts, etc. The practice has reflected the principle of prudence to varying degrees. The principle of prudence provides the basis for the above methods, thus standardizing and institutionalizing these practices.

Second, the principle of prudence in the specific application of accounting.

At present, the principle of prudence is embodied in the following aspects in China's accounting work:

1. About inventory pricing.

Traditional inventory valuation methods include the first-in first-out method, the weighted average method, and the individual valuation method. Since the price level in China has generally been rising in recent years, a more scientific first-in, first-out method has emerged. Since the scope of application of the individual valuation method is small, the role of the weighted average method is between the first-in first-out method and the last-in first-out method. Therefore, we focus on the analysis of the first-in first-out method and the first-in first-out method.

The FIFO method assumes that the first-purchased inventory is issued first, and the inventory is issued and the ending inventory is valued according to this assumed cost-sequence order. Its advantage is that the inventory cost flow is closer to the actual cargo flow. The value of the ending stocks is in line with the trend of price changes, and the managers are not allowed to manipulate the change of income at will, thus ensuring the authenticity of accounting information.

The last in, first out method assumes that the last purchased inventory is issued first, and the inventories and ending stocks are valued according to this assumed cost flow order. His advantage is that the cost close to the current period is better matched with the current income, so that the measured operating income is more realistic.

According to the principle of prudence, the FIFO method is applicable to commodities whose market prices are generally in a downward trend. Because the FIFO method is adopted, the ending inventory balance is calculated based on the final purchase price, so that the price of the ending inventory is close to the current price, which truly reflects the ending asset status of the enterprise; the book price of the ending inventory reflects the final purchase. Low prices, for products with declining market prices, meet the requirements of prudent principles, can resist the impact of falling prices, reduce the risk of business operations, eliminate potential hidden risks, thus avoiding the inflated corporate books due to unrealistic inventory funds. assets. At this time, if the LIFO method is adopted, under the condition that the stock materials maintain a certain balance, the inventory valuation of the book is always the high price of the initial purchase, which causes the inconsistency between the inventory cost and the actual logistics.

The LIFO method applies to commodities whose market prices are on an increasing trend. Because the last-in, first-out method is adopted, the unit price of the issued materials is closer to the market price, and the book value of the inventory at the end of the enterprise reflects that the value of the original purchase or the inventory value of the product is rising on the price of the product. Operating profit can reflect the business results of the enterprise objectively and reasonably. At this time, if the first-in, first-out method is adopted, the early low-cost ratio will be matched with the current operating income, so that the gross profit will be miscalculated. This will inevitably lead to short-term behavior of the enterprise, and there is a big hidden loss behind the illusion of higher profitability of the enterprise. Factors are left to the historical burden that the company cannot digest, increasing the risk of business operations.

Therefore, the method of inventory valuation adopted by enterprises depends on the trend of price changes. From a prudent point of view, it is better to underestimate the value of the inventory at the end of the period and overestimate the method of issuing the cost in order to ensure the inventory replacement capacity of the enterprise and determine the true profit of the enterprise.

2. Depreciation of fixed assets.

The use of accelerated depreciation for fixed assets is another typical application of the principle of prudence. A main feature of fixed assets is that they can continue to function in a number of production cycles and maintain their original physical form, and their value is gradually transferred to the product through the form of depreciation to achieve value compensation. For a long time, China has adopted the method of average years and the amount of work for depreciation of fixed assets, and depreciated on the basis of the number of years of use of fixed assets or the number of hours that fixed assets can work. Ignore the loss of value and the price increase caused by technological progress. The "Accounting Standards for Business Enterprises" stipulates: "If the relevant regulations are met, the accelerated depreciation method may also be adopted." The industry accounting system further stipulates that certain enterprises may choose one method in the double-declining balance method and the sum-of-year sum method after approval by the financial department. Speed ​​up depreciation.

The double-declining balance method is a method of determining the depreciation amount of fixed assets in each period by multiplying the depreciation value at the beginning of each period on the fixed assets account by the double-line depreciation rate without considering the residual value of the fixed assets.

The sum of years method is a method of calculating the annual depreciation amount by multiplying the net value of the original value of the fixed assets minus the residual value by a decreasing number of years.

The remarkable feature of the accelerated depreciation method is that the depreciation is increased in the early period of the fixed assets, and the depreciation is reduced in the later period. The depreciation amount is reduced year by year but does not change the total depreciation of fixed assets. Therefore, the accelerated depreciation method is in line with the principle of prudence. It not only compensates for the tangible loss of fixed assets, but also compensates for the intangible losses caused by technological advances. It also reduces the loss of time value of money, speeds up the upgrading of fixed assets, and improves the The labor productivity and profitability of enterprises, and increase the state's fiscal revenue. As the country's financial strength increases, the use of accelerated depreciation laws will continue to expand, creating a more equal market competition environment for large, medium and small enterprises.

3. About intangible assets.

The so-called intangible assets refer to special assets that have no physical form and can be used by enterprises for long-term economic benefits and are highly uncertain. Its high degree of uncertainty is embodied in the valuation and amortization of intangible assets. Therefore, the accounting of intangible assets in these two aspects should implement the principle of prudence.

1) About the valuation of intangible assets.

Intangible assets can provide economic benefits for enterprises in a long period of time, but the future economic benefits provided are highly uncertain, which means that the value usage and use income of intangible assets cannot be accurately measured. This feature determines that the pricing of intangible assets should follow the principle of prudence. The valuation of intangible assets by an enterprise shall be accounted for in accordance with the requirements for the accuracy of the expenditure and the efficiency of use. Although this has lowered the assets and raised the expenses for the enterprise, it also lowered the current profit of the enterprise to reduce the current tax burden of the enterprise and increase the independent financial resources of the enterprise, thus prompting the enterprise to accelerate the development and utilization of intangible assets. To provide more economic benefits for enterprises.

2) Amortization of intangible assets.

According to the "Accounting Standards for Business Enterprises", various intangible assets should be amortized evenly during the income period. The main reason is that the intangible assets recorded by the enterprise are the assets that capitalize the costs and expenses, and the value of the intangible assets can be determined; although the effective period of the intangible assets is difficult to determine, the various rights and privileges of the enterprise are usually limited. According to the principle of prudence, intangible assets should be amortized over the effective useful life.

At present, the amortization method of intangible assets adopts the average method, and the value of intangible assets is evenly distributed to the accounting period according to the effective period. However, there are many intangible assets, such as patents, trademarks, copyrights, land use rights, non-patented technologies, goodwill, etc. Although they are intangible assets, their specific characteristics are different, even the same intangible assets. The methods obtained may not be consistent, and the amortization method and the amortization period shall not be uniformly handled in accordance with the above provisions. The economic benefits brought by copyrights, land use rights, etc. during their effective use period are basically stable, and the straight-line method is more reasonable. However, if it is a patent or a non-patented technology, it should be treated differently.

4. About bad debt preparation.

Bad debt refers to the accounts receivable that the enterprise cannot recover, and the resulting losses are called bad debt losses. The confirmation of bad debts shall meet one of the following two conditions: 1. Accounts receivable that are still not recoverable after the debtor’s bankruptcy or death has been settled by its bankrupt property or estate. 2. The debtor has not fulfilled its debt service obligations within the time limit, and has obvious characteristics indicating that the accounts receivable cannot be recovered.

With the in-depth development of the market economy, in the face of the increasingly serious "triangular debt", each enterprise faces the risk that some credits become bad debt losses, and it is increasingly important to predict and deal with the various credit loss risks. In the past, we generally adopted the practice of “reporting sales” for the loss of bad debts, that is, the “direct sales method”: when the bad debts were confirmed, the bad debt losses were included in the current profit and loss. The shortcoming of this approach is that it cannot link the bad debt losses recorded in a certain period with the credit sales amount that led to the bad debts, thus violating the accounting principle of income and expense ratio. At the same time, the balance sheet should be listed. The amount of the receivables does not reflect the possible bad debts and therefore does not meet the requirements of the prudence principle. The current accounting system stipulates that in the current period in which the credit sales business occurs, the company can use the allowance method to account for bad debt losses, that is, to estimate the possible bad debt losses according to certain methods, and to account for the current expenses, which will form bad debts and actually occur. In the case of bad debts, the bad debts are prepared and the accounts receivable are resold at the same time to make up for the shortfall of the direct write-off method.

The method of estimating the bad debt loss by using the allowance method, according to the principle of prudence and the principle of proportioning, the accounts receivable of the enterprise shall be based on the value that can be realized in the future, and the estimated bad debt losses may be accounted for. At present, China's accounting practice can only adopt the percentage of accounts receivable method. The enterprise can make provision for bad debts at the end of the year, according to the balance of accounts receivable at the end of the year, 3%--5%. Form bad debts, and when the actual bad debts occur, the bad debts are prepared and the accounts receivable are resold.

The provision for bad debts is to convert the bad debt losses that suddenly occur in discreteness into bad debts that are continuously accrued and confirmed in a continuous manner, so as to account for the bad debt risk and its financial status and operating results. The negative impact of the pre-existing control, to avoid the abnormal fluctuations of the accounting data, so that the profit level of each period is basically normal, balanced and coordinated. However, in order to successfully complete the pre-control task, certain conditions are required, namely, scientific predictability, accrual stability and timeliness of write-off. The scientific nature of prediction refers to the fact that enterprises should reasonably estimate the degree of bad debt risk based on the actual situation of their own production and operation, combined with historical data and industry characteristics, and use the accounting method to conduct scientific analysis. Proportion; the stability of the accrual refers to the provision of bad debts on a regular basis and in a regular manner on the basis of scientific predictions; the timeliness of write-offs means that once bad debts occur, they should be confirmed in time. And write off, reduce the bad debt reserve.

In short, the allowance method overcomes the shortcomings of the direct write-off method in which the losses are directly included in the management expenses when the bad debts occur, and the profits of the enterprises fluctuate greatly, leading to the deterioration of the financial situation of the enterprises. The preparation of bad debts enables enterprises to gradually digest bad debt losses, ensure the stability of corporate profits, enhance the ability of enterprises to withstand risks, avoid the false assets of enterprises, and truly reflect their financial status, in line with the principle of prudence and matching. Requirements.

5. Calculate long-term investment using the equity method.

There are two main methods of accounting for stock investment: cost method and equity method. The cost method is based on the actual cost of long-term investment as the basis for registering the “long-term investment” account. The amount of investment is not affected by changes in the equity of the invested enterprise. No matter whether the invested enterprise is good or bad, no change is made during the investment period.

The current "Financial System of Industrial Enterprises" stipulates that if an enterprise has actual control over the investee, it should be accounted for using the equity method. The so-called equity method is a method of accounting for stock investment according to the actual share of the investment enterprise in the property rights of the invested enterprise. The specific method is: after the stock is purchased, it will enter the “long-term investment” according to the actual cost. When the invested enterprise is profitable at the end of the period, the share of the investment should be calculated as the increase of long-term investment; when the invested enterprise loses, it will be calculated according to the investment ratio. The corresponding amount reduces the book value of long-term investments and reduces the book value of the “long-term investment” account when receiving dividends distributed by the invested company.

The value of long-term investment of an enterprise does not depend on the original investment amount but on the operation status of the invested enterprise. The property rights of the well-invested enterprises are increased, and the return on investment is increased. The property rights of the invested enterprises are reduced, the return on investment is reduced or even returned. The rate is zero. Using the equity method to account for long-term investment, the increase or decrease of the property rights of the invested enterprise, that is, any change in the profit and loss and the dividend distribution on the financial statements of the invested enterprise will cause corresponding changes in the book value of the “long-term investment-stock investment” account of the enterprise, so that The company anticipates that losses that may occur at any time will be cautious in dealing with the risks of long-term investments.

Third, correctly understand and apply the principle of caution to prevent excessive caution.

With the development and development of the market system, the field of market mechanism has gradually expanded, market competition has become more intense, and the business risk of enterprises has increased. To this end, we must vigorously carry out the reform of the corporate system, especially the property rights system. By rationalizing the relationship of property rights, enterprises will truly become independent legal entities and market competition entities. At the same time, it is necessary to earnestly safeguard the property rights of state-owned assets so that enterprises can assume the responsibility of maintaining and increasing the value of state-owned assets. The in-depth implementation of reform and opening up requires us to correctly understand and apply the principle of prudence, and should limit the excessive caution to achieve the preservation and appreciation of corporate assets.

1. Scientifically impose necessary restrictions on the application of the principle of prudence through the law.

China's implementation of the socialist market economy, the use of the principle of prudence, must be subordinated to its value objectives and interests. Therefore, the state must scientifically impose the necessary restrictions on it to operate on the right track.

The new corporate financial system has made corresponding provisions on the principle of prudence. For example, enterprises are allowed to make provision for bad debts based on the balance of accounts receivable at the end of the year of 3%--5%; enterprises that allow some quick technology updates to adopt accelerated depreciation method, etc. These provisions lay a certain foundation for the correct application of the principle of prudence. . However, there are still some problems in applying the principle of prudence in practical work, mainly the problem of excessive caution. With the in-depth development of China's socialist market economy, the business activities of enterprises are facing more severe market competition environment and operational risks. Therefore, the state should strengthen legislation, and the content should clearly indicate the restrictions on the use, such as not allowing excessive withdrawal of reserves, deliberately lowering assets or income, deliberately raising debts or expenses, etc., to prevent excessively cautious behavior, blocking illegal The loopholes were also formulated to impose penalties on violations of laws and regulations, and to strengthen law enforcement. In particular, in the current situation where the market mechanism is still not perfect, the principle of prudence is used as a means for enterprises to enhance their competitiveness. The state must supervise and manage it through laws.

2 The principle of prudence should be limited to the current financial burden.

Since the principle of prudence can make the profit of the enterprise change in the amount and period, the corporate profit is the main source of the state's fiscal revenue. Therefore, the relationship between the current profit and the state's fiscal revenue must be handled. The principle of prudence should be moderate. The limits should be limited to the current financial burden. If companies are driven by short-term interests, adopting an overly cautious approach and unduly reducing corporate profits will reduce national taxes or even tax-free.

Therefore, enterprises must correctly apply the principle of prudence in accordance with the prescribed scope and standards, accelerate the pace of technological progress on the basis of increasing the independent financial resources of enterprises, vigorously improve economic efficiency, and ensure the sustained and steady growth of the state's fiscal revenue.

3. Analyze the requirements of the principle of prudence from the environment and conditions in which the economic business is located.

In Western financial accounting, the principle of prudence is applied as a guiding principle. That is to say, when an economic business involves both the principle of prudence and other relevant principles, the former is the main one. In China, we should analyze the environment and preconditions of economic business, and seriously consider the requirements of the principle of prudence on the premise of insisting on the authenticity and scientificity of accounting information.

China's economy is a socialist market economy dominated by the state-owned economy. The state is both a social economic manager and a state-owned asset owner. In order to meet the needs of the country's macroeconomic regulation and control, enterprises should follow the principles of objectivity, importance, consistency and prudence when selecting accounting methods to ensure that the selected accounting methods are provided on the basis of the actual business conditions of the enterprise. Accounting information is comparable and authentic. If the enterprise does not consider China's national conditions, does not consider the environment and preconditions of economic business, and insists on the principle of prudence as the guiding principle to choose the accounting method that is beneficial to the enterprise, it may cause accounting information to be somewhat incomparable and true. . For example, in the Western countries that use inventory pricing, the “cost and market price depreciation method” is mainly adopted. When the cost of inventory is lower than the market price, the inventory value is calculated by cost. When the inventory cost is higher than the market price, the inventory value is calculated based on the market price. Its advantage lies in the implementation of the principle of prudence, the preservation of the company's capital operation, and the stability of the company's operating strength, thereby avoiding risks in business operations. However, it is contrary to the historical cost pricing principle of inventory. Some items of inventory are valued at cost, and some are priced at market price. In the same period, the same kind of inventory is valued at the time when the market price rises, and when the market price falls, the market price is used to make the enterprise inventory. There is a loss of comparable standards and lack of comparability between different projects, between the early and late stages, and between enterprises. For the management of the country’s giants, it has lost the comparable basis for the decision of the giant

Therefore, in our country's enterprises must consider the requirements of the principles of objectivity, comparability, consistency, prudence and historical cost according to the actual situation of China, and correctly select the accounting method suitable for the enterprise.

In short, the principle of prudence has been applied in China's financial management work. It should be said that it is a breakthrough in the understanding and application of the general principles of accounting, and it is also one of the main signs to prove the integration of modern accounting and international accounting in China. It is of great significance to enhance the competitiveness of enterprises and thus promote the development of the socialist market economy. Then, how to use the principle of prudence in our daily accounting work to provide more scientific, real and effective accounting information for the state, society and business leaders is an important issue for each of our accounting workers. . To this end, each of our accounting workers must carefully study financial knowledge, master accounting regulations, grasp the appropriate issues of prudent principles, and make our contribution to the prosperity and strength of the country in order to establish a modern enterprise system.