Consolidated financial statements first appeared in the United States. Many American companies made such statements as early as the beginning of this century. 1888 The Company Law of New Jersey of the United States stipulates the preparation of consolidated statements. During the First World War, the United States forced the parent company and subsidiaries to pay taxes in the tax law, which made most holding companies begin to prepare consolidated financial statements. 1940, the securities and exchange commission of the United States stipulated that listed companies must prepare and provide consolidated financial statements, making the preparation of consolidated financial statements a legal obligation of listed companies. 1February 1995, the Ministry of Finance issued the Interim Provisions on Consolidated Accounting Statements. This paper clarifies the purpose, scope, content and procedure of China enterprise group in preparing consolidated statements, draws lessons from some methods of international accounting standards, and embodies the concept of connecting with International accounting practices. With the deepening of China's enterprise system reform, joint-stock system will become the main enterprise economic system to form enterprise groups, which will further promote the further development of listed companies. In order to meet the needs of domestic and foreign securities markets and related parties for accounting information, the preparation of consolidated financial statements of enterprises has been paid more and more attention by countries all over the world. The positive role of consolidated financial statements is self-evident, which can provide comprehensive information about the economic resources directly or indirectly controlled by the parent company and the operating results of the whole enterprise group, and can also fully reflect the rights and interests of shareholders of the parent company in the enterprise group. However, there are still some shortcomings in the consolidated financial statements. This paper intends to talk about the limitations of consolidated financial statements.

First, analyze the limitations of consolidated financial statements

(A) the characteristics of information provided by financial statements are the objective basis for the limitations of consolidated financial statements, mainly as follows:

1. The information provided by the preparation of financial statements is mainly financial, generally quantified and expressed in monetary units;

2. The information provided by the preparation of financial statements is often the result of approximate measurement, rather than the result of accurate measurement. With a few exceptions, all kinds of measurements are approximate measurements according to rules and practices, not accurate figures;

3. The information provided by the preparation of financial statements mainly reflects the financial achievements of the enterprise and what has happened;

4. Financial statements are only a source of information for enterprises to make economic decisions, and decision makers need to combine the information provided by financial statements with other social, economic and political information;

5. Providing and using information through the preparation of financial statements requires a price, which includes not only the assets directly used to provide information, but also the adverse effects that disclosure of information may have on an organization.

(2) The consolidated financial statements can't reflect the operating status and financial status of legal entities within the enterprise group. Because the consolidated financial statements expand the concept of accounting entity and reflect the financial and operating conditions of the whole enterprise group from the perspective of economic entity. The consolidated financial statements treat the resources and business activities of two or more independent legal entities as one entity, and combine the resources and business activities of the merged entity according to the principle that substance is more important than form. The consolidated financial statements emphasize economic entities, not legal subjects. The individual operating conditions and economic performance of each subsidiary in an enterprise group cannot be disclosed in the consolidated financial statements. As far as the creditors of individual companies in the enterprise group are concerned, their information needs cannot be met, because the creditors of individual subsidiaries in the enterprise group need to know the repayment ability of subsidiaries as independent legal persons. Because if the subsidiary company can't pay off the debt, the creditor has no right to ask the parent company to pay off the debt. In addition, creditors make decisions based on the information provided in the consolidated statements, which may lead to misunderstanding. For example, the ratio of debt to total assets reflected in the consolidated balance sheet may provide creditors of subsidiaries with asset protection rates different from those calculated by legal entities. The financial information provided by this consolidated statement has certain limitations to the creditors of each subsidiary. The consolidated financial statement consolidates all the members of the whole group, and one subsidiary's current financial situation is not good, which may be offset by another subsidiary's current financial situation.

(3) The total assets reflected in the consolidated financial statements are not the total assets that can be used by enterprise groups. Because some enterprises are subsidiaries of enterprise groups, but the holding company does not own all the shares of the subsidiaries. The part of the shares that are not owned belongs to the minority shareholders of the subsidiary. Shareholders who own this minority share also need to use separate financial statements of subsidiaries. Even if the holding company owns 100% of the shares, under some special circumstances, the assets disclosed in the consolidated financial statements cannot represent the total assets available to the enterprise group. For example, the holding relationship is only temporary; The parent company owns more than 50% of the voting shares actually issued by its subsidiaries, but the subsidiaries are in the process of legal reorganization or bankruptcy; The business nature of parent company and subsidiary company is completely different; The country where the subsidiary is located implements strict foreign exchange control, and all the foreign exchange income of the subsidiary cannot be remitted to China. When the holding company owns minority shares, the owner's equity in the consolidated balance sheet is not all the shareholders' equity of the enterprise group, because minority shares are excluded, and the assets and liabilities of subsidiaries are priced in two different ways when preparing consolidated financial statements. The equity part of the parent company is priced at the fair value on the purchase date (consolidated by purchase method), and the minority equity part belonging to the subsidiary company is still priced at the book value.

(d) Although the consolidated financial statements can provide the shareholders of the parent company with information about the financial status, operating results and capital flow of the whole enterprise group, they cannot provide the shareholders with a basis for predicting and evaluating the future dividend distribution of the parent company and all its subsidiaries. Dividend distribution depends on each company's retained earnings policy, asset composition, legal restrictions and the company's financial forecast for the future. Therefore, even if there are a lot of consolidated retained earnings and strong cash flow ability in the consolidated assets and liabilities, there is no guarantee that every company included in the consolidated statements can distribute cash dividends. Similarly, the parent and subsidiary companies are legally independent, and the parent company cannot use the net income realized by its subsidiaries before dividends. In cross-industry diversified companies, the data in the consolidated financial statements cannot be analyzed according to the industry standard ratio because of the great differences in business scope and business content between the parent company and its subsidiaries. The ratios calculated in consolidated financial statements, such as inventory turnover rate and profit rate, often can neither reflect the performance of subsidiaries nor represent the performance of parent companies.

(5) In the consolidated financial statements of some multinational companies, the amount is the result of converting the currencies of different countries at the selected exchange rate. However, in different countries, the purchasing power level of money is different, especially in today's drastic changes in the foreign exchange market, and this conversion is also affected by many factors such as exchange rates, interest rates and economic policies. The conversion methods of foreign currency statements include current and non-current methods, monetary and non-monetary methods, tense method, current exchange rate conversion method and so on. The accounting theory and practice of host countries are also different, so the preparation of consolidated financial statements is quite complicated. Even if all subsidiaries of the group adopt the same conversion method, the different purchasing power levels of currencies in different countries also restrict the authenticity of the information in the consolidated financial statements. Besides, how easy is it to ask hundreds or even thousands of multinational companies to adopt the same conversion method when preparing consolidated financial statements?

(VI) Immature merger theory restricts the use of consolidated financial statements. The accounting treatment methods of enterprise merger usually include purchase method and equity method. However, which way the merged enterprise chooses is obviously subjective. Because there are many differences between the two methods in compiling consolidated financial statements, the results will affect all aspects of enterprise merger. For example, when the purchase method is adopted, the assets and liabilities of the merged enterprise are merged into the parent company at fair value, which violates the historical cost principle, so there are many opinions on how to deal with the difference between fair value and book value. Some people think that the difference should be recorded as goodwill (negative goodwill), and goodwill can be handled in three different ways. There will be no problems such as goodwill and asset appreciation when using the equity combination method, but its use is subject to various restrictions. The opinion 16 of the American Accounting Principles Board clearly stipulates the 12 condition for adopting the equity combination method.

With the increasing frequency of mergers and acquisitions, the ownership structure of listed companies is becoming more and more complicated. The parent company obtains the controlling rights of subsidiaries by stages, the parent company sells some subsidiaries, the subsidiaries do not issue additional shares to the original shareholders according to this ratio, and the enterprises in the group hold shares with each other. The merger theory needs to be constantly supplemented and developed.