Does the Control-based Approach to Consolidated Statements Better Reflect Market Value than the Ownership-based Approach?
AbstractMotivated by the recent Discussion Paper (DP) issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on how to define reporting entities, this study investigates the value relevance of consolidated statements under the ownership-based approach of U.S. Accounting Research Bulletin No. 51 (ARB 51) and the control-based approach of International Accounting Standard No. 27 (IAS 27). The results show that consolidated financial statements based on a broader definition of control provide more useful accounting information than those based only on majority-ownership control. We also address one concern raised in the DP, namely, whether a reporting entity should use the common control model to include entities that are under common control of an individual investor or family. The results suggest that accounting standard boards should include the common control model in defining the group reporting entity for firms with complex ownership structures.
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Bibliographic InfoArticle provided by Elsevier in its journal The International Journal of Accounting.
Volume (Year): 47 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/620179
Consolidated statements; Control-based approach; Reporting entity; Ownership-based approach; Ownership structure; ARB 51; IAS 27;
Find related papers by JEL classification:
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- M48 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Government Policy and Regulation
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