Worry-free accounting net www.5 1kj.com.cn Time: 2008-1-151:02: 00 Author: Wu Juan Source: Northern Economy,No./kloc-0 in 2007.
With the widespread establishment of modern corporate enterprises and the rapid development of multinational companies, the theory and practice of compiling consolidated accounting statements have attracted more and more attention from accounting theorists and practitioners. Representative M&A theories include parent company theory, entity theory and ownership theory. Based on the above M&A theory, this paper discusses the choice of M&A theory in China.
Keywords: merger theory, parent company theory, entity theory, ownership theory
Consolidated accounting statements are statements that take the company group as a single accounting entity and reflect the financial status and operating results of the whole company group from the perspective of the whole company group. However, when defining the boundary of a single accounting entity in a company group, there are different ideas, thus forming a variety of different merger theories, which directly affect the merger accounting methods.
Parent company theory is a kind of merger theory that looks at the holding merger relationship between parent company and its subsidiaries from the perspective of company shareholders. This theory focuses on reflecting the share of the shareholders of the parent company or holding company in the consolidated financial position and operating results, without paying attention to the rights and interests of minority shareholders, and regards them as the liabilities of the whole group.
Entity theory is a kind of merger theory that looks at the holding merger relationship between parent company and its subsidiaries from the perspective of the unified entity composed of parent company and its subsidiaries. It treats minority shareholders and majority shareholders equally in the merged entity, and its accounting statements combine the resources controlled by the parent company, not the resources owned by the parent company.
Ownership theory is a merger theory that focuses on the ownership of the parent company in the subsidiary company. Although this theory is simple and easy to compile accounting statements, it is not suitable for the consolidated accounting statements of enterprise groups regarded as a whole to reveal the economic situation of their overall entities. In fact, it is usually used to reveal the financial situation of joint ventures.
First, the comparison of the characteristics of merger theory
The above theories have their own characteristics, and the differences are shown in the table:
Second, the impact of the merger theory on the quality characteristics of accounting information
Wu Liansheng believes that understandability is the basic quality feature of accounting information in Financial Report of Listed Companies. Usefulness is the overall quality characteristic of accounting information; Reliability, sufficiency, relevance and comparability are the main quality characteristics of accounting information, that is, useful information must have reliability, sufficiency, relevance and comparability. This paper analyzes the influence of merger theory on relevance, reliability, adequacy, comparability and understandability.
Influence on correlation
Relevance ensures that accounting information decision-making has a major quality feature. The value paid by the parent company during business combination is related to the users of statements. Whether buying shares or assets, the fair value of assets and liabilities of subsidiaries should be considered. The value obtained through the bargaining process between buyers and sellers or through asset appraisal is more relevant than the book value of the buyer. The parent company theory only reflects the fair value according to the equity share. When the parent company holds a small number of shares in the subsidiary, but actually controls the subsidiary, the fair value is very small. Entity theory reflects the purchased subsidiary assets at fair value. At this point, the information reflected by the entity theory is more relevant. However, fair value depends on the complete market, which is difficult to form or imperfect for a while. The fair value of assets is subjective and often used by companies to manipulate profits. Therefore, the use of fair value will affect the reliability of information.
(B) the impact on reliability
The reliability of accounting information refers to ensuring that information can be error-free and unbiased, and can truly reflect the quality of the phenomenon or situation it wants to reflect. Merger and acquisition between companies, whether it is stock exchange merger or cash asset purchase, is essentially a purchase behavior. Under the merger of stock exchanges, it is equivalent to the parent company selling its shares in the market to obtain cash to buy subsidiaries. Then the asset value of the company on the merger date should be recorded according to the market price on the acquisition date; Under the parent company theory, the fair value is confirmed according to the equity ratio of the parent company, and the rest is priced according to the original book value. Obviously, such value cannot truly reflect the actual value of assets, so it is not authentic and the reliability of information is out of the question.
Effect of adequacy
Adequacy is the quality requirement of accounting information in content composition, including completeness and importance. Integrity requires that accounting information include the actual situation related to users as much as possible and fully reflect it. According to the parent company theory, some relevant information is often omitted in consolidated accounting statements. The consolidated accounting statements under the parent company theory reflect the related projects of the parent company in detail, but simply reflect the minority shareholders' projects of the subsidiaries. The consolidated accounting statements prepared under the guidance of entity theory can reflect the respective rights and interests of controlling shareholders and non-controlling shareholders at the beginning and end of the period, retained earnings and their respective current income and dividends, so the consolidated accounting statements prepared under the guidance of entity theory are more complete.
Importance means that accounting information should be important to users, that is, when an accounting information is omitted or incorrectly stated, it may affect users' judgments and decisions. The parent company theory emphasizes the right of legal control. When the parent company only has a low proportion of investment in its subsidiaries and actually controls them, the subsidiaries must also be included in the scope of consolidation when preparing consolidated accounting statements. When calculating minority shareholders' equity, profit and loss and profit offset, based on the proportion of equity investment, some important information is ignored, which affects users' decision-making.
(d) Impact on comparability
Comparability requires that accounting policies between different enterprises have the same basis; At the same time, the same enterprise should adopt the same accounting methods and policies in the early and late stages to ensure the comparability of information between different enterprises and the same enterprise in the early and late stages. The consolidated accounting statements under the parent company theory adopt the dual pricing method for the subsidiary assets, which are priced at fair value according to the investment proportion of the parent company, and the rest are priced at book value. When the proportion of parent company's investment in subsidiaries changes, the same assets will show different values in the early and late stages, and the comparability of information will be questioned.
(e) Impact on intelligibility
Understandability requires that accounting information has the characteristics that can be understood by users. An important condition for the effective operation of the stock market is to convert relevant information into stock prices as much as possible. Whether the relevant information can be converted into stock prices is related to the expression of information and the ability of investors, which requires that the expression of accounting information is easy to understand and can be understood by investors. The consolidated statements compiled under the parent company theory use different proportions of double pricing for the same asset to offset the internal unrealized profits, which increases the complexity of accounting treatment. The valuation of the same asset changes with the change of equity investment ratio, which increases the difficulty for information users to understand. In fact, these complicated treatments are unnecessary, and they also contradict the relevant pricing principles. On the contrary, the entity theory adopts a single fair value for the assets of subsidiaries and completely offsets the internal unrealized profits, which is simple and easy for information users to understand.
To sum up, it is not difficult to see that the accounting statement information provided by entity theory is more complete, objective and comparable. Because the entity theory stands on the position of the whole enterprise group, its purpose is to serve all shareholders and creditors of the whole enterprise group (including minority shareholders of subsidiaries). The consolidated statement can reflect the rights and interests of minority shareholders of the parent company and subsidiaries at the beginning and end of the period, retained earnings and their respective profits and profit distribution in the current period.
Third, the choice and reason analysis of the theory of accounting statement consolidation in China
(A) China's choice of accounting statement consolidation theory
China's 1995 Interim Provisions on Accounting Statements for Business Combinations focuses on the parent company theory, while the current Accounting Standards for Business Enterprises No.33-Consolidated Financial Statements focuses on the entity theory, stipulating that the share of owners' equity of subsidiaries that do not belong to the parent company should be listed as minority shareholders' equity in the consolidated balance sheet, and the share of current net profit and loss of subsidiaries belonging to minority shareholders should be listed in the consolidated income statement. In addition, the calculation of consolidated goodwill adopts the parent company theory.
(2) Cause analysis
Entity theory is the best choice of M&A theory.
1. In the future, the shares of joint-stock companies will be more and more dispersed. In the past, minority shareholders may have more shares than their parent company. This is likely to make the parent company "reduced" to a minority shareholder in the past. Although the parent company is still the parent company from the perspective of "control", the reduction of such shares may make the purpose of preparing consolidated financial statements according to the parent company theory even more unsatisfactory. Therefore, only the entity theory can provide the consolidated financial information for all shareholders with the same shareholding ratio.
2. With the further improvement of China's socialist market economic system, the interests of creditors represented by commercial banks are becoming more and more important. In the case of providing loan guarantee between parent companies or subsidiaries, consolidated statements are very important for creditors such as commercial banks to know the real financial situation, operating results and cash flow of the whole enterprise group. Therefore, the purpose of open consolidated statements advocated by entity theory is obviously suitable for the actual situation of information demand in China, while the purpose of consolidated statements expounded by other consolidation theories is too closed. Moreover, the entity theory is consistent with the current definition of accounting elements in China. For the same minority shareholder's rights and interests, the parent company will arrange it under the liability in the statement, and the entity theory will arrange it under the owner's rights and interests in the statement; For the income of the same shareholder, the parent company theory arranges it under the expense in the statement, while the entity theory presents it separately in the net income. In contrast, the definition of minority shareholders' rights and interests and the nature of minority shareholders' profits and losses in the parent company theory is not consistent with the definition of accounting elements in China.
3. From the purpose of compiling consolidated accounting statements, firstly, it is to provide the whole enterprise group (including the parent company and all subsidiaries) with a complete picture of its financial status and operating results and its total financial scale; The second is to satisfy the report users to fully understand the overall financial situation, operating results and cash flow of the enterprise group (not just the parent company). Entity theory takes the economic consortium formed by enterprise group members as the accounting subject, and considers the scope and technical methods of consolidated accounting statements from the perspective of consortium. Therefore, consolidated accounting statements based on entity theory are more in line with the purpose of compiling consolidated accounting statements.
4. The goodwill under the entity theory lacks verifiability. The concept of entity is based on the assumption that minority shareholders of subsidiaries are willing to pay the same price as controlling shareholders to buy the equity of subsidiaries, so the goodwill calculated according to the concept of entity is highly hypothetical. Therefore, China has chosen a relatively reasonable parent company theory in the calculation of consolidated goodwill.
From the above analysis, we can see that after more than ten years of development and improvement, China's consolidated accounting theory has gradually matured, basically in line with the prevailing international accounting standards. At the same time, considering the characteristics of China's market economy, it makes some supplementary differences, which embodies the characteristics of China and is more suitable for China's economic development.
Author: Wu Juan Source: Northern Economy, 2007 18.