A Study On The Rationality Of The Use Of The Pooling-of-Interests Method In China

With the increase and innovation of business combinations, the choice of the purchase method and the pooling-of-interests method becomes one of the biggest controversies in both academic and practical circles of accounting. Now the international popular practice is to eliminate the pooling-of-interests method and push the purchase method. However, is the use of the pooling-of-interests method rational based upon the actual condition in China?This thesis begins with the comparison and analysis between these two methods. On basis of these, we can find that they might not only have different accounting consequences, but also result in different economic consequences. Next, we discuss the mergers and acquisitions (M&A) market condition in our country, and make a conclusion that now the use of the pooling-of-interests method, which may promote the development of our M&A market, will help to reflect the substance of business combinations under common control more accurately because of three reasons: first, the split share structure issue still exists; second, government still plays an important role in business combinations; third, it is hard to determine the fair value. Furthermore, through the study on the cases of exchange of stocks, which arose from 1998 to 2004 in China's securities market, we can further prove that the use of the pooling-of-interests method in our actual M&A transactions is rational and it should be used in China as long as we frame some restrictive regulations to standardize it. Finally, this thesis compares our new accounting standard of business combinations with SFAS141 and IFRS3, and points out that our new standard, which accords with the international popular practice, is also consistent with the particularity of our market condition at present. It will have an active impact on business combination activities in future.