The Analysis On The Applicability Of The Pooling Method In The Business Combination Accounting

Accounting for business combinations has been a difficult, controversial and important topic all along, and the focus both in the academic and Practical fields, especially the applicability of the pooling of interests method being the focus of the controversy. As the pooling accounting was influence by earnings management, the accounting information under the pooling method is less relevant. However, the quality and decision usefulness of the accounting information has been attached to more and more importance nowadays. So, the applicability of the pooling method has been discussed more often. The paper, from the accounting information’s quality angle, examines the applicability of the pooling method based on the value relevance measured byOhlson’s (1995) valuation model.The paper compares the accounting and economic consequences between pooling method and purchase method, finds that the earnings under pooling method can provide the possibility for profit manipulation, angle from the vertical, confirmed the merger date of seasonal value relevance of accounting information decreased compared to prior quarter. Then from horizontal angle, the study examines the value relevance and the incremental value relevance of reported earnings and book value under pooling of interests and purchase accounting respectively by multiple regression analysis. The result demonstrates that the value relevance of the accounting information under purchase method is much more significant than that under the pooling of interests accounting.Finally, the paper puts up with some related suggestions to the application status and the problems of the pooling of interests accounting.