Business Combination Accounting Approach

Accounting for business combination has been an issue concerned both in the field of accounting theory and practice. Using different approach to measure business combination will lead to different accounting result and even different economic result and may also influence the combination itself. FASB and IASB eliminated the pooling of interests method one after another. In the trend of international accounting standard convergence, China retained the pooling of interests method because of her special economical environment.There are three kinds of accounting methods for business combinations, which are the purchase method, the pooling of interests method and the fresh-start method. The last one has never been used in practice yet; the second one is used under strict conditions; and the first one is used in every comer of the world.This paper firstly introduces the developing history of the accounting standards of IASB(IASC) , FASB and CAS. It reveals that the economical environment promoted the development of the accounting standards. This part's analysis makes a foundation for the forecast of the accounting methods. Then it gives a comparison and analysis between the purchase method and the pooling of interests method. On basis of these, we can find that there are many different accounting consequences. The purchase method has been recognized all over the world, but when use it there are many questions and difficulties. In this paper, I choose two questions to analyze, for the paper and my knowledge are limited. The pooling of interests method was not been used in the accounting standards of IASB and FASB, but in China it is the first time that the method comes into the accounting standards. There are reasons of this big difference. In this paper, the shortcomings and rationality of pooling method and are discussed. IASB and FASB didn't give a criterion of the business combination under common control, but postponed the research and intended to use the fresh start method to manage this kind of business combination. At the end of this paper, it gives a brief prospect of the accounting methods.