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Business Combinations and Consolidation

Many companies choose to combine or consolidate their companies when they see an opportunity for economic growth. This arrangement could be a joint venture, merger, combination, or a consolidation. While these terms seem similar, they have very different meanings when it comes to financial reporting. Companies will often choose a business combination or consolidation based on the impact it will have on the balance sheets. Since accounting standards and reporting rules vary for combinations and consolidations, choosing one over the other may have a more positive impact on a company's financial reports.

Analyze how consolidations and business combination promulgations affect off-balance sheet manipulations. Include research on the development of consolidations and business combination promulgations.

Solution Preview

Consolidations and business combination promulgations affect off balance sheet manipulations. When a merger takes place off balance sheet manipulations include moving debt off of the balance sheet and transferring risk for business ventures. Acquired entities help keep the credit rating of the acquiring company high. The acquired businesses and special purpose entities help the companies to cover up their losses. One way covering up losses is to do improper asset valuation at the time of acquisition. The amounts assigned to assets are not based on their fair values (a). A number of strategies are used to cover up losses. The assets' values may be overstated, historical value may be rolled over without independent evidence, or the value of the consideration may be improperly valued.
Another method of doing off-balance sheet manipulations during acquisitions is to acquire or newly set up unconsolidated entities at book values which ...

Solution Summary

This solution explains business combination and its impact on off balance sheet manipulations. The sources used are also included in the solution.

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