Study on "Economic Substance Over Legal Form" Related to Consolidation Policy

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1.This study is concerned with the important policy, "economic substance over legal form, " related to the consolidated financial statements.2.Traditional consolidated financial statements are prepared on the basis of legal concepts. A parent entity is defined as an entity that it holds more than 50% of equity interests of the other entity.3.On the difinition of this study, control of an entity means the power over its assets-the power to use or direct the use of the individual assets of an entity to achieve the objectives of the controlling entity.4.FASB's 1994 Preliminary Views on "Consolidation Policy" suggests that control of an entity is the power to control the governing board of the other entity.5.Although the most clear-cut example of the cotrol of an entity is that it holds a majority of equity interrests of the entity, cotrol can be achieved in other ways. Therefore, control should be defined as power to use or direct the use of the controlled entity's individual assets to achieve the objectives of the controlling entity.