A Study Of Accounting Standards On Business Combinations

In order to regulate accounting for business combinations, the majority of developed countries, such as the U.K. and the U.S., have been established accounting standards on business combinations one after the other since such transaction came forth. Meanwhile, International accounting circles have been exploring this accounting puzzle. With the system of market economy growing up, business combinations have been common in China. China published an Exposure Draft of an accounting standard on business combinations in 1995, but the final standard has not been issued till now. In the context of international society hotly debating accounting standards on business combinations, this thesis is to research on issues concerning accounting standards on business combinations, and considering characteristics of transforming economy in China, offer proposals for developing Chinese accounting standards on business combinations.The thesis consists of four chapters. In chapter 1, the accounting for business combinations is summarized. A combination wave is surging all over the world, and as a member of WTO, China would be confronted with more and more complex issues related to business combinations. The accounting for business combinations differs from accounting for other transactions owing to the particularity of combination transactions. Combination transactions will affect economic benefit of several beneficial parties, so the study of accounting standards on business combinations makes great sense in practice. Before accounting standards on business combination being discussed, the names of business combination are harmonized, and the definition of business combination is identified. Accounting standards on business combinations have experienced a variance for 60 years. The U.S. is the first to develop accounting standards on the aspect, and many standards on business combinations of other countries are based on the standards of the U.S.; the international accounting standards on business combinations by the International Accounting Standards Board (IASB) become the reference to all the accounting standard-setters. In China, the accounting for business combinations has not been regulated efficiently yet, which resulted in disorder, therefore, developing related accounting standards is imperative under the situation.The international background is introduced in chapter 2. The study of accountingstandards on business combinations by international accounting circles is more mature, and has become a system by this time. In July 2001, The IASB initiated the project on business combinations and the project has two phases. Phase I has resulted in the IASB publishing an Exposure Draft of a proposed international financial reporting standard (IFRS) to replace IAS 22 Business Combinations (ED 3),and an Exposure Draft of a proposed Amendments to IAS 36 Impairment of Assets and IAS 38 Intangible Assets. The IASB concluded, and ED 3 proposes, that all business combinations within the scope of the IFRS should be accounted for using the purchase method, the pooling of interests method being prohibited; ED 3 focuses on economic substance of "control" in identifying an acquirer in combination effected through an exchange of equity interests; ED 3 deals with the relationship of the accounting standard on business combinations and related accounting standards better than ever; for purpose of improving the comparability and reliability of accounting information, ED 3 cancels some options in the standard; and the accounting for goodwill and negative goodwill is changed. Considering keeping consistent with ED 3, the IASB proposed to revise the regulations about impairment testing against goodwill and treatment of impairment losses for goodwill in IAS 36, and to IAS38, amend the definition of an intangible asset, criteria for initial recognition, useful life, etc. During the phase II, which is conducted as a joint project with the Financial Accounting Standards Board (FASB), the IASB mainly considered issues related to the application of t...