A Study On The Consolidated Scope Of Financial Statements

Consolidated financial statements have developed for more than one hundred years. At present, the dispute over the purchase method and the pooling of interest method and that over the Patent Theory and Entity Theory have temporarily come to an end. But the consolidation policy, which determines the scope of the consolidated financial statements, remains controversial as it is difficult to define the effective control, which involves much subjective judgments. Besides, global mergers and acquisitions is developing rapidly, with a surge of innovative ways of completing the deals and ways of settlement, and it is common that the listed companies carry out earnings management using the change in consolidated scope. All of these make it difficult to set accounting standards or to supervise. Therefore, study on the scope of consolidated financial statements could have both theoretical and practical contribution.This dissertation discusses consolidated scope in two parts: standard research and accounting practice in China. In the first part, after brief discussion on the consolidation theory and giving an economics thought on consolidated financial statements, this dissertation compares CAS 33 consolidated financial statements with related standards (or Exposure Drafts and the latest research development) issued by FASB and IASB (IASC) and makes comments on the definition of control and the consolidation policy. In the second part, this dissertation uses descriptive statistics and cases study to investigate the following aspects: effective control, the relationship of control criteria and earnings management in consolidated scope. Finally, this dissertation gives some advice on how to solve the existing problems that lie in the accounting standards and accounting practice. So much so that certain enlightenment could be followed either on the theoretic development or on the accounting practice innovation.The academic contributions of this dissertation are described as follows: Firstly, this dissertation studies the relationship of control criteria and gives the proposed procedure of determining the consolidated scope. Secondly, this dissertation uses descriptive statistics and cases study to investigate the accounting practice of listed companies when determining the consolidated scope.