Study On The Economic Consequences Of Business Combination Accounting Methods

The accounting methods for business combination mainly include three kinds: the purchase method, the pooling of interests method and the fresh-start method. From the worldwide, only the purchase method and the pooling of interests method have get the practical application at present, while the fresh-start method was still in the stage of theoretical exploration. For our country, it is also the first two kinds of methods that essentially be allowed to use according to the accounting standard on business combinations. About the fresh-start method, it not only has not been used, but also the relevant theoretical research is few. During the last years, along with the rapid development of market economy and the increasing maturity of capital market, business combinations become one of the most important ways to contribute to the company’s development in our country, and thereby the business merger information will play an very important role in the decision-making of investors and the allocation of market resources. As one of the key to business merger accounting problems, economic consequences of accounting method’s choice has received more and more attention from the theory and practice. On the theory, the views which are about the choice, the economic consequences of the business combinations accounting methods are overwhelming. So, they need further analysis and summary. In practice, the regulations on the accounting methods for business combination still have a lot of loopholes and deficiencies which need the further modification and improvement after the analysis of its economic consequences. Therefore, the author finally choose to study the economic consequences of business combination’s accounting methods from the perspective of investors.The main content of this article includes five parts. The first part is the introduction, and mainly introduces the background study on significance, contents and methods and the main efforts and limitations. The second part focus on the theoretical basis of accounting method of business combination. This part, on the one hand, From the notion, characteristics, differences and the historical change of three methods; on the other hand, introduces theories related to the economic consequences theory contract and agency theory suggests the root cause of the economic consequences and economic consequences theory has clear the basic mechanism of the economic consequences. Besides,this part also refer to the enterprise value and value relevance theories. The third part is a main section which analyze the reason of the accounting methods’economic consequences for business combination combined with the specific environment in china. The fourth part, tests the different impact of accounting information which generated by different methods on investors’decision-making.The last part mainly Summary this article and on this basis, put forward some improvement opinions about the current relevant standards from two aspects:the application of two main methods and the introduction of the fresh-start method.Through the above analysis of the practice and empirical test which are based on the related theory, I believe:Based on the related theory of economic consequences, the management is very likely to choose the best choice among the different accounting policies without violating accounting rules. Different accounting methods of business combination have obvious differences. Under china’s special financing and regulatory environment, the management will be make different choices to meet their own or a specific need, and then the accounting information will produce different effect on investors’ judgment. Although the pooling of interests method can produce the relatively reliable accounting information, these information is lack of usefulness for investors’ decision-making; In contrast, the purchase method can provide the accounting information which is more useful to the investors’ judgment. It also determines the reliability of fair value measurement become the most important problem, as a result we can see that the related accounting rules require our further attention.