Why did the economic entity theory replace the parent company theory in China's accounting standards?

Generally speaking, China's current consolidated accounting statements focus on the parent company theory. However, in the long run, ontology is China's inevitable choice. First of all, from the evolution of American merger theory, it can be seen that it will be the general trend for entity theory to replace parent company theory, which can also be verified in the choice of merger theory in other countries in the world. Secondly, since China joined WTO, accounting standards have gradually converged internationally, and the theory of entity is the development direction of international consolidated accounting standards. In addition, with the rapid development of social economy, more and more external entities of enterprises have a strong demand for information disclosure of consolidated accounting statements. For example, when making investment decisions, creditors and other stakeholders of enterprise groups need to understand the comprehensive situation of the whole enterprise through consolidated accounting statements. The purpose of open consolidated accounting statements advocated by entity theory is just suitable for the actual situation of accounting information demand in China at present, while the purpose of consolidated accounting statements expounded by other consolidation concepts is too closed. Thirdly, from the nature of minority shareholders' rights and interests and minority shareholders' profits and losses, the position of entity theory is consistent with the definition of accounting elements in China. Under the entity theory, minority shareholders' rights and interests are an integral part of the merged shareholders' rights and interests, because minority shareholders' rights and interests are not an obligation to the merged entity and will not lead to the outflow of economic benefits. Similarly, the profit and loss of minority shareholders are not expenses, but the distribution of consolidated net profit realized by the merged entity. In contrast, the identification of minority shareholders' rights and interests and the nature of minority shareholders' profits and losses by owner theory and parent company theory is incompatible with the definition of accounting elements in China. 2. Determination of the scope of merger. The principle of "substance is more important than form" should be followed in determining the scope of consolidated accounting statements, and control right is the premise of determining the scope of consolidation. Control is control in practical sense, not just control in legal form. In some cases, although one party has a formal controlling interest, according to the company's articles of association or other agreements and contracts, it may be that the party does not have actual controlling rights, so consolidated financial statements should not be prepared at this time; On the contrary, although one party has no controlling interest, according to the articles of association, it has actual control over the investment object and can obtain corresponding control interests. At this time, consolidated statements should also be prepared. Therefore, in China, the principle of quality standard should be adopted in the scope of consolidation of accounting statements, that is, enterprises should be included in the scope of consolidation only when they actually have the right to operate, make financial decisions and benefit. 3. Selection of merger method. It is the future trend of the development of consolidated accounting statement method to completely cancel the equity combination method, but from the reality of our country, it is reasonable for the equity combination method to exist in a certain range. First of all, the combination of rights and interests method is simple in operation and relatively simple in accounting treatment, which reduces the workload and difficulty of accounting, and is feasible under the condition that the overall quality of accounting personnel in China is not high. Secondly, due to the imperfection of China's capital market, it is difficult for the purchase method to obtain the fair value of the net assets of the merged enterprise, and the equity combination method solves this problem by measuring the book value. However, the equity combination method is easy to be manipulated when measuring the net assets of the acquired enterprise according to the book value in the process of enterprise merger and acquisition, which leads to the underestimation of the asset value. The Purchase Law regards enterprise merger as a transaction in which one enterprise obtains the net assets of another enterprise, which belongs to the nature of purchase. Under the purchase method, the assets of the purchased enterprise are revalued according to the fair value on the purchase date, and the difference between the purchase cost and the revalued net assets is regarded as the consolidated goodwill. From the point of view of integrating with international accounting standards and truly measuring the assets of the acquired enterprises, China's current M&A methods should be based on the purchase method as a whole, allowing qualified enterprises to adopt the equity combination method, but the conditions for using the equity combination method must be strictly restricted to prevent its abuse. 4. Selection of translation methods for foreign currency accounting statements. As a developing country, China's foreign investment and business activities are carried out late and its capital market is underdeveloped. The state controls the foreign exchange market, and the RMB exchange rate has been relatively stable. At present, China is still a capital importing country. For a long time to come, the scale and quantity of foreign investment by domestic companies will not account for a large proportion of the total capital, and the business activities of these companies in foreign subsidiaries are mostly limited to selling the products of the parent company and repatriating the payment, which is equivalent to the extension of the parent company abroad. Therefore, the temporal method is suitable for transformation. 5. Treatment of consolidated price difference. Compared with the United States, the shortcomings of China's accounting consolidation spread treatment are that the definition of consolidation spread is unclear and the amortization method is inaccurate. The general definition makes the nature of consolidated price difference vague in theory, and also makes the compilation of consolidated accounting statements very arbitrary in practice. In the aspect of dealing with the merger spread, China should refer to the practice of developed countries such as the United States, that is, classify the merger spread in detail and reflect it in identifiable assets, liabilities and goodwill items according to its ownership nature. In addition, different amortization methods should be formulated for different components of the consolidated price difference in order to reflect the financial situation of the enterprise more truly.