Comparison with IFRS3 CAS20

[Abstract] accounting business combination accounting theory and practice has been the focus of debate, the argument is that the core issue of the main method of accounting for business combinations, goodwill treatment, to obtain a business combination such as the measurement of assets and liabilities. Of the Ministry of Finance February 15, 2006 issued a <"Enterprise Accounting Standards No. 20 Business Combinations --->" (referred to as CAS20), marking the first formal specification of business combination accounting treatment guidelines issued. This paper from the five aspects of the business combination accounting standards issued by the International Financial Reporting Standards on comparative business combination proposed business combination of International Financial Reporting Standards and the combined view of the convergence criteria.

[Keywords:] business combination; accounting standards; convergence

One, of the problem

Business combination accounting profession of accounting is considered to be one of the four problems, the current international accounting standards applicable in international as the International Accounting Standards Board (IASB) published in 2004, <"International Financial Reporting Standard 3 - Business Combinations> >, but also of the Ministry of Finance in early 2006 to develop and promulgate a <"Enterprise Accounting Standards No. 20 - Business Combinations>" (referred to as CAS20), required from January 1, 2007 onwards, listed companies and listed within key large state-owned enterprises Accounting Standards Executive .39 promulgation marks meet the development requirements of China's market economy, enterprise convergence with international practice the formal establishment of accounting standards system. accounting standards on business combinations, significant changes are in the New Accounting Standards One of the most striking change. <"Enterprise Accounting Standards No. 20 Business Combinations --->> In full consideration the actual situation of our country at this stage on the basis of International Financial Reporting Standards with the full coordination by the international the accounting profession's recognition and praise. Based on the two accounting standards in the scope of consolidation method defined in accounting treatment and related costs of processing and Goodwill five comparison and analysis of the difference.


Second, domestic and foreign enterprises the development process of merger accounting standards

(A) IASB accounting standards on business combinations, the development process
International Accounting Standards Board (IASB, formerly International Accounting Standards Committee, the IASC) in 1983 issued a <"International Accounting Standard No. 22 - Business Combinations>" (referred to IAS22 - 1983), accounting for business combinations approach proposed purchase method and pooling of interest method Back in 1993, and 1998, the International Accounting Standards No. 22 has been amended twice (ie IAS22 - 1993 and IAS22 - 1998). The revised merger or the purchase method of accounting treatment and the pooling of interest method, but the refinement of the combined type classification, interest and the buyer criteria with strictly defined scope of interests method .2004 March 31, the International Accounting Standards Board (IASB) and the U.S. through the financial Accounting Standards Board (FASB) cooperation, completed the first phase of the work, published <"International Financial Reporting Standard 3 - Business Combinations>" (referred to as IFRS3), provides business combinations must be processed using the purchase method, prohibit companies will merge in the amortization of goodwill generated, requiring treatment by the impairment test for impairment .2005 June 30, as the second phase of the work content, FASB released a draft Business Combination sare placement of FASBS tatement No.141, IASB issued a draft Amendments to IFRS3 Business Combinations.

(B) merger-related accounting standards of the development process
In 1995, China's Ministry of Finance "Promulgated <Interim consolidated financial statements of the provisions of>> the first time on the preparation and reporting of enterprise-wide consolidated financial statements, consolidated financial statements of the content, the specific combination method and the disclosure statements were detailed provisions .1997, Ministry of Finance issued a <"Enterprise Merger accounting treatment related to the Interim Provisions>>, on the merger side business and handling the accounts of the merged enterprise, preparation of financial statements, the applicable accounting system and the Application of the provisions of the treatment of goodwill makes provision for such In 1998, the Ministry of Finance issued <"On the accounting questions Ltd.>> in other enterprises of the Corporation to purchase all or pArt of the shares, the business being purchased assets and liabilities of the recorded value , the determination of the date of purchase and the purchase of business when it was included in the consolidation scope and other issues answered .2006 year, the Ministry of Finance based on the realities in China, drawing on international accounting standards and reasonable content, formulation and promulgation of the <"Enterprise Accounting Standards No. 20 - - Business Combinations>>, the definition of business combination, classification, accounting treatment, the treatment of goodwill and other content has been provided.


Third, the international accounting standards and differences in accounting standards of China

(A) Scope of Differences
1.IFRS3 relevant provisions of the
IFRS3 clear that paragraph 3 of the International Financial Reporting Standards do not apply to 4 cases: (l) by a separate set of subject or business joint venture formed by the merger of enterprises; (2) involving the main or business under common control of the business combination; (3) involves two or more co-principal of the business combination; (4) alone or business only through the main body of the contract but not to get a collection of owner's equity share of a reporting entity formed by the merger.

2.CAS the relevant provisions of
CAS Article III, the merger guidelines do not involve the merger of the following two situations: (1) The two pArties or more than two pArties formed a joint venture of the business combination; (2) only by contract rather than ownership of the shares will be two or more separate entities into one reporting entity of the business combination.

Two criteria are the requirements of the business combination are excluded from the scope of the business combination to form joint ventures and contracts, not only through the ownership share of the business combination, the biggest difference is that China's accounting standards also include a business combination under common control. Whether international Standards or U.S. GAAP are the same under the control of a business combination are excluded. and a lot of practice are business combination business combination under common control, so our <"Enterprise merge>> accounting rules: For the same under the control of business combination, in principle, required in accordance with the equity method for processing; rather than a business combination under common control should be adopted in principle the purchase method.

(B) Comparison consolidation method defined
1. IFRS3 the relevant provisions of
The definition of the merger, IFRS3 in paragraph 4 that the business combination is a collection of individual or business as a main body of the report. The guidelines also point out that a business combination because the legal, tax or other reasons in a variety of combined methods.

2. CAS relevant provisions of the
CAS Article II, business combination refers to two or more separate entities into one reporting entity in the transaction or event. Concept is not defined in terms of the merger method.

Two criteria are defined in the way of the merger means to obtain a business enterprise or other control over the enterprise. But with IFRS3, the new guidelines do not specify the way to do the merger.

(C) Differences in accounting methods,
1. IFRS3 the relevant provisions of
IFRS3 the provisions of paragraph 14, companies must use the purchase method of consolidation. The current international accounting standards applicable to business combinations tend to buy the basic law, about a business combination transaction as a purchase of another business enterprise equity or net assets of the process.

2. CAS relevant provisions of the
CAS provides a business combination in accordance with the merger of the companies involved before the merger is under common control, were combined using the equity method and the purchase method of accounting.

Two criteria for merger accounting approach are provided using the purchase method, but with IFRS3, the new guidelines will be divided into a business combination under common control business combinations and non-business combination under common control, the provisions of the merger of enterprises under common control combination of using the equity method, under common control business combinations using the purchase method.

(Iv) costs associated with the comparison between the treatment
1. IFRS3 the relevant provisions of
IFRS3 provides for the payment of a business combination are employed to achieve the merger of accountants, legal advisers and other expenses included in the merger occurred in the cost of intermediaries; management fees incurred and can not draw a combined cost of belonging to which specific other costs, in the event of the period recognized as an expense.

2. CAS relevant provisions of the
The new standard requires, in the same business combination under the control of intermediary costs occurring recognized as expenses in the event; not the same under the control of a business combination occurs through the direct costs related to merger costs.

(E) the treatment of goodwill
1. IFRS3 the relevant provisions of
IFRS3 provisions, the purchaser should be purchased at the Goodwill acquired in a business combination is recognized as an asset, its cost to confirm that the cost of business combination should exceed calculated in accordance with the provisions of the identifiable assets, liabilities and contingent liabilities net fair value of share rights are recognized as goodwill. Subsequent to initial recognition, the purchaser should cost less accumulated impairment losses all to measure the balance of goodwill acquired in the merger and should not be amortized and should be according to the provisions of accounting standards is tested for impairment annually. If there are matters or changes in the environment shows the possible impairment, should be tested for impairment more frequently.

Links to Research Papers Download http://www.hi138.com 2. CAS relevant provisions of the
CAS provides that the purchase date, the cost should be greater than the combined purchase of the parties recognized in the identifiable assets, liabilities, net fair value is recognized as goodwill. Companies should at the end of each accounting for goodwill in accordance with the <"Enterprise Accounting Standards No. 8 - Impairment of Assets>> impairment test calculation to determine the impairment amount. For some of the goodwill impairment test should be included in the current period. at the acquisition date, the purchaser should less than the combined cost of the recognized identifiable assets, liabilities, net fair value is recognized as negative goodwill. acquirer in the all identifiable assets and liabilities at fair value, after review, to occurred through profit or loss.

Two criteria for the accounting treatment of goodwill and impairment testing requirements are the same. However, IFRS3 than the cost of business combinations calculated in accordance with the provisions of the identifiable assets, liabilities and contingent liabilities the net fair value of share rights clearly part of the goodwill generated is recognized as an asset; The new guidelines were not clear. In addition, China <<Assets>> Guidelines states: In the group of underlying assets include goodwill, or for impairment testing of asset groups , if the assets and goodwill related group or asset groups such evidence exists, it shall first group does not include assets or goodwill impairment testing of asset groups, calculate the recoverable amount, and with the relevant carrying value comparison, the corresponding impairment loss is recognized, then the assets of groups containing goodwill or asset groups impairment test, compare or asset group's carrying value of asset groups and their recoverable amount, such as the related assets or asset groups Group combination of the recoverable amount is lower than its carrying value, an impairment loss. China's accounting standards for goodwill impairment testing is only one step. Although the international accounting standards for goodwill impairment testing is only one step, but the introduction of the "cash generating unit" concept, rather than the concept of using the asset group.


IV, Conclusion

In the past 10 years time, the accounting treatment of business combinations gradually standardized, but in the process of mergers and acquisitions, corporate accounting practices also lack of proper accounting guidance. Newly promulgated <"Enterprise Accounting Standards>> fundamentally accounting for business combinations, the basic principles, goodwill treatment was standardized, in order to reduce the use of fair value due to earnings manipulation and distortion profit formed by the merger, the combined profit and loss given a certain degree of attention. It reflects the China's accounting standards into line with international accounting standards, but also reflects our national conditions. Of course, testing the validity of a guideline change, the key lies in the practical Application of business case study, which requires a combination of business combination accounting theory, analysis of enterprise faced the objective environment, the Application of merger guidelines and the problems more in-depth Research.


[Main references]
[1] the preparation group. New Accounting Standards explanation and use of [M]. Shanghai: Lixin Accounting Press, 2006.

[2] Huangguang Song, Shiwen first, Hu Wang, Zhang Zhuoqi. New Accounting Standards Guidance - illustration and comparison of [M]. Shanghai: Shanghai Finance University Press, 2006, (4).

[3] Accounting Standards Board of Reviewing Editors. Enterprise Accounting Guidelines - Application Guide [M]. Shanghai: Lixin Accounting Press, 2006, (12).

[4] Chinese version of the International Accounting Standards [M].

[5] Xu Han, Yang Rong this. Sino-Japanese and international accounting standards in the relevant provisions of merger comparison [J]. Accounting Monthly, 2006, (8).

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