Business Combination And Financial Fraudulence

The world is now experiencing the fifth boom of business combination. In China, Merger and Acquisition also double its speed in capital market. Then It is essential to recognize that business combination could help corporate to expand promptly and improve its competitiveness rapidly, which has a great effect on corporate management. So how to recognize, measure, and report business combination in accounting becomes a crucial issue. To make this issue more urgent, it appears that some corporates take an advantage of defect in the going regulation and rules on business combination accounting to manipulate profit. Such financial fraudulences mislead investors by false information, disorder economy development, and also ground for business failure in future.The Ministry of Finance in China issues Business Combination Standard and Consolidated Financial Statement Standard in Feb 2006. That takes business combination accounting into a hot and realistic academic topic. This paper is supposed to look into ways and means of profit manipulation by business combination accounting, and try to find out possible improvements in accounting standards, auditing methods, and corporate governances.The paper begins with qualitative characteristics of accounting information and is made up by three segments. Segment One is Chapter One. In this chapter, the concepts of business combination are explained and scope of research in this paper is defined. Then it is pointed out that reliability should be the main information characteristic, but financial fraud badly hurts reliability, so we should try our best to prevent financial fraud.Segment Two involves Chapter two to five. In this segment, we will probe into intrigues on business combination accounting. Chapter two is about tricks of consolidation scope, such as to enlarge and reduce the consolidation scope, or to set up a maze of Special Purpose Entity (SPE). Chapter Three is about purchase method and pooling of interest method. We will firstly study the differences between these two methods, and have a review of the history of rejecting pooling method throughout the world. Then some cases will show us the economic substance of purchase and pooling, and they also come to a discussion on"common control". Chapter Four deals with tricks of purchase method, for example manipulating fair value and purchase...