Does the Control-based Approach to Consolidated Statements Better Reflect Market Value than the Ownership-based Approach?

Audrey Wen-hsin Hsu, Rong-Ruey Duh and Kang Cheng

The International Journal of Accounting, 2012, vol. 47, issue 2, 198-225

Abstract: Motivated 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.

Keywords: Consolidated statements; Control-based approach; Reporting entity; Ownership-based approach; Ownership structure; ARB 51; IAS 27 (search for similar items in EconPapers)
JEL-codes: M41 M48 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:47:y:2012:i:2:p:198-225

DOI: 10.1016/j.intacc.2012.03.003

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