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 will enter the consolidated statements", the major shareholders holding absolute control can avoid bringing the company into the scope of merger if they prove that they do not have control over the financial and managerial decision-making power of their subsidiaries.

As long as we prove that we actually grasp the financial and operational decision-making power of the invested company, we can bring the best companies into the scope of merger.

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 using this trick often bite one of the control standards and ignore other rules.

For example, one of a group company.

The two sub enterprises, which are the largest shareholder, but have a shareholding ratio of less than 50%, and a majority of seats occupied by the other non-listed company of the group, are actually incorporated into the consolidated statements of the listed companies, resulting in a profit of 240 million for 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.

In fact, the interests of Oracle Corp in the Jiefang company have not changed. The suspension of the trust agreement and the equity law are just the time when the profits of the 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, Xishui, which originally held 17.21% stake in Tianan insurance, has the right to vote with a total of 55.83% of Tianan insurance through acquisition and authorization, thus bringing Tianan into the amalgamate area from 2012. The authorized period of 35.83% votes from three shareholders of Tianan three 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.

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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.