The Research On Economic Consequences Of Accounting Method And A Business Combination Involving Under Common Control

For a business combination involving under common control, the “Accounting Standard for Business Enterprises No.20: Business Combinations”(CAS20)adopts similar to the pooling of interest method, namely according to the book value of assets and liabilities of the party being absorbed for confirmation. The difference between value obtaining from the business combinations and value given up by the absorbing party adjusts the equity. A very important reason is that CAS20 argues that "a business combination involving under common control, in essence, is not purchase, but the integration of two or more accounting entity equity." For the ultimate controlling shareholders, no matter what kind of payment of consideration is adopted, business in a business combination involving under common control is continuous, the manager is continuous, the final control without substantial change, at this point, in a business combination involving under common control can be regarded as the integration of two or more accounting entity equity.In a business combination involving under common control, both the party being absorbed and the absorbing party are ultimately controlled by the same party or parties. The party being absorbed is combined by the absorbing party, is a kind of related party transactions, assets pricing may be not fair; Consideration paid by the absorbing party to ultimate controlling shareholder and the choice of combining consideration payment, also are likely unfair; The ultimate controlling shareholders may obtain private benefits of control(PBC)by control right, how to influence the method of consideration payment. The entire transaction process is under the control of ultimate controlling shareholder, is the result of enterprise ownership structure: highly centralized equity, equity balance degree is low. Highly centralized equity and low equity balance degree provides a guarantee for PBC obtained by the ultimate controlling shareholders on the equity structure.In a business combination involving under common control, the asset pricing of the party being absorbed is the core problem, assets pricing depends on the assets evaluation value, and decides the amount of the consideration. In the statistical sampleof this paper, the net assets value assessment of the most party being absorbed exist value-added, and hence high, assets pricing is not fair; Consideration paid by the absorbing party mainly reference the evaluation value of net assets, both are consistent;The absorbing party may transfer wealth or interests to the ultimate controlling shareholders by a business combination involving under common control, premium under cash payment is real money transfer. Wealth transferring under cash payment and tunneling in private placement is the composition of PBC.For both sides, according to the payment of specific judgment. This paper argues that: The following business combination are excluded from outside the scope of a business combination involving under common control: cash payments or payment including most of cash, private placement to the ultimate controlling shareholders, private placement to the stock holder(not the ultimate controlling shareholders)and the two sides are not independent before combination, but a purchase transaction. In our country, after the completion of a business combination involving under common control, the financial statements is offered by the absorbing party, rather than the ultimate controlling shareholders, and most a business combination involving under common control is not equity combination of both sides. A business combination involving under common control in our country, it is related party transactions between the party being absorbed and the absorbing party controlled by the same ultimate controlling shareholders, sometimes the related party transactions completed in internal capital markets.Many business combinations involving under common control in China do not conform to the applicable condition of the pooling of interest method, the problems of similar to the pooling of interest method CAS20 prescribed in practice mainly include: book value does not reflect the economic substance of assets and liabilities of the party being absorbed; deviated from the accounting information reliability; profits before business combinations of the party being absorbed is fully consolidated; the comparative statements adjusted may not be comparable.To choose what kind of accounting method, should not only consider the economic substance of a business combination involving under common control, but also consider the economic consequences of accounting method. In a business combinationinvolving under common control in our country, asset pricing and consideration is not fair, in combination with similar to the pooling of interest method stipulated by CAS20 to a certain extent, even pushing the premium. Accounting method is not, however, the determinants factor of unfair asset pricing and unfair premium, accounting information provided by accounting method is an exogenous variable.In a business combination involving under common control, the party being absorbed is not a listed company in general, its data is difficult to obtain, this topic study related issues mainly based on the perspective of the absorbing party. Besides the above problems, this paper also found the following issues:(1)There are problems in information disclosure of the related party transactions: although pricing principles of related party transactions is disclosed, pricing method(or evaluation method)is few disclosed, especially evaluation value and book value of combined assets exist differences, there is no disclosure of assets value assessment method.(2)Whether the payment of combination consideration or profits contributed by the party being absorbed in several accounting year, suggests that the party being absorbed may transfer wealth to the ultimate controlling shareholder by cash payment. The pricing discount rate facing the ultimate controlling shareholders, compared to institutional investors dropped substantially.(3)The accounting method does not reflect the cash payment or private placement completely, that pushing the absorbing party transfer wealth to the ultimate controlling shareholder by cash payment or private placement.Not only unfair asset pricing in related party transactions, combinations premium of considerations, but also wealth tunneling through cash payment or tunneling flowing through private placement, have prompted the ultimate controlling shareholders to obtain the PBC. Among them, some transactions in the range of accounting standard, some transactions beyond the scope of accounting standard.In view of this, this paper puts forward suggestions from the revision of accounting standards, perfection of the assets appraisal information disclosure, perfection of internal capital market mechanism and improvement of the consideration confirmation method.Compared with the previous research results, this paper innovation has the following several aspects:(1)the theoretical interpretation of the economic root of a business combination involving under common control, discusses the economic essence of a business combination involving under common control, a business combination involving under common control is analyzed and its economic consequences of accounting method.(2)to redefine the scope of a business combination involving under common control.(3)according to the payment of consideration, to standardize accounting method of a business combination involving under common control.