Consolidated Financial Statements To Achieve Internal Control

China's accounting standards for Enterprises No. thirty-third - consolidated financial statements and Its Application Guidelines shall be regarded as "control" in the determination of the scope of merger. Any subsidiary controlled by the parent company should be incorporated into the consolidated financial statements.

When the company indirectly owns more than half of the voting rights of the invested unit, it shall incorporate the invested entity into the merger scope; and the two is the voting rule below 50%, that is, when the parent company has half or less of the invested unit's voting rights, it shall meet the following requirements: (1) having more than half the voting rights of the invested unit through the agreement between the investor and the other investors of the invested unit; (2) having the right to decide the financial and operational policies of the invested unit according to the articles of association or agreement; (3) having the power to appoint or remove the majority of the members of the board of directors or similar institutions of the invested unit; (4) having the majority of the voting rights of the board of directors or similar institutions of the invested unit. There are two specific rules for judging: one is the voting rule of more than 50%, that is, when the parent company is directly or through.

Of course, even if the above rules are met, there is evidence that the parent company can not control the invested units.

Rules can be regarded as both quantity and quality, and both form and essence are taken into account, but at the same time, there is room for manipulation.

In accordance with the principle of "who controls who makes consolidated statements and who is controlled, who enters consolidated statements", the major shareholders holding absolute control can avoid incorporating poor performing companies into the scope of merger if they can prove that they do not control the financial and managerial decision-making power of their subsidiaries. Small shareholders who do not have majority voting can be incorporated into the scope of merger if they prove that they actually have the financial and operational decision-making power of the invested company.

This trick can be called static pocket magic, the number of subsidiaries is so large, the merger is viewed by the parent company, the constraint is to follow the "control" rule.

Companies that use this trick often bite a certain control standard and ignore other rules.

For example, a listed company of a group company, which is the largest shareholder, but has a shareholding ratio of less than 50%, and a group of other non-listed company occupy the majority of seats of the board of directors, so that the two sub enterprises with substantial control are included in the consolidated statements of the listed companies, resulting in a 240 million profit of the listed companies in 2008 and 2009.

Again, in 2001, Oracle Corp trusteeship the 32% shares held by Jiefang company, and asked the trustee to manage its ownership benefits to the Jiefang company, so that Oracle Corp's accounting treatment of the investment was changed from the equity method to the cost method, that is, Oracle Bone paper does not record the profits and losses of the Jiefang company in its consolidated statement.

Actually, Oracle Corp is in Jiefang company.

No change has been made. The release of the trust agreement and the withdrawal of the rights and interests law are just the time when the profits of Jiefang company declined sharply.

Quietness is relative movement.

The parent company can adjust the scope of the merger by increasing and reducing its subsidiaries so as to achieve the goal of earnings management. It can be called dynamic pocket magic.

The number of subsidiaries is more or less, the increase or decrease in the parent company.

A more direct way to increase or decrease is to acquire and pfer (including intra group reorganization), and also to achieve subsidiaries' entry and exit consolidated statements by changing substantive control rights.

For example, Xi Shui shares, which originally held 17.21% stake in Tianan insurance, passed.

Together with the authorization, the company has the voting rights of 55.83% of Tianan insurance, thus bringing the Cheonan into the amalgamate area from 2012. The authorized period of 35.83% votes from three shareholders of Tianan is up to the end of 2014.

Compared with the same period in 2011, the combined quarterly report increased by more than 2 times in 2012 compared with the same period in 2011. Net profit has changed from a loss of more than 4000 to a profit of about 30000000.

The SFC believes that it is impossible to judge the adequacy of Tianan insurance incorporation.

For example, the city's shares have been suspended since July 1999. In June 2001, the company made a major asset replacement, replacing some of its assets and 7 wholly owned subsidiaries, and pferred to 2 holding subsidiaries, so that the company's combined profits rose from -6890 million yuan in 2000 to 26 million 540 thousand yuan in 2001, thus restoring the listing.

There is another case.

Tianjin magnetic card business accounted for more than half of its main business profits in 2001 from its first half year paction with the global high tech bank. However, in the first half of the year, the Tianjin magnetic card held 90% stake in global hi tech. After the completion of the paction, the Tianjin magcard no longer held any equity stake in global high tech through equity pfer, so the income and profit of the internal purchase and sale pactions that had been offset were confirmed by the dynamic pocket magic.

From New

A number of empirical studies have shown that about 70% of the listed companies in China have incorporated their subsidiaries into the scope of merger based on 50% voting rights, while those with less than 50% voting rights are still included in the merger scope, while about 1/3 of the listed companies have not made specific explanations.

The inexplicit disclosure creates a convenient environment for the application of pocket magic.

Regulators have been committed to improving the rules and institutional constraints that limit the function of pocket magic, and the changes in rules will drive the details of pocket magic.

The game is always there.