The Pooling Of Interests Method: History,Present And Chinese Practice

Accounting for business combinations has been a difficult, controversial and important topic all along, and also the focus both in the academic and practical fields from abroad and domestic. And accounting method for business combinations under common control is the most difficult. In China, the new accounting standard system was issued by Ministry of Finance in February 2006, including business combinations, which prescribes business combinations under common control should be accounted by the pooling of interests method.The paper first presents a comparative analysis of the accounting standards from abroad and domestic. After theory analysis, the paper suggests that it is necessary to regulate the accounting method for business combinations under common control definitely for the presently economic situation and characteristic of business combinations in China, and concludes that it is reasonable in theory to apply the pooling of interests method for the combinations under common control. Then according the research of cases, the paper concludes that business combinations under common control: (1) do not appear the huge rise of profit because of applying the pooling of interests method, but it has significant effect on profit if applying the different accounting methods. (2) the holding shareholders which have close relation with the government gain added values, but maybe damage the benefit of shareholders of circulating shares. (3) do not add the trade cost because of applying the pooling of interests method, but maybe influence the efficiency of resources allocation. (4) because the companies prefer to applying the pooling of interests method, in the future, there will be more business combinations under common control than business combinations under uncommon control in China.