The Issues Of Improvement Of Consolidated Financial Statements: Georgian Evidence

Business Combinations represent one of the biggest units of Georgian economy. And the consolidated financial statements prepared and presented by them are the main basis for investors when they make their decisions on investing in the company. Therefore, it is rather important that the financial accounting principles applied by the company and prepared and presented consolidated financial statements based on that principles are reliable and reflect a company's financial position, its performance, cash flows and changes in capital fairly. In that case, the economic decisions made by the investors will be correct and this will increase their trust towards the company. The analysis of information presented in the consolidated financial statements of some Georgian holding companies regarding the acquisitions made by them is provided in the Paper. The assessment criteria are the requirements of IFRS 3 Business Combinations regarding business combinations accounting and the requirements of IFRS 10 Consolidated Financial Statements concerning the consolidated financial statements prepared and presented by holding companies. The conducted analysis has revealed some problems which are common to all considered Georgian companies and their solution will improve the accounting of business combinations by Georgian holding companies and preparation and presentation of consolidated financial statements as well. To achieve this goal the preparers of financial statements should: • describe main motives of business combination in more detail in the consolidated financial statements, as this will provide more transparency for investors and other interested parties; • include intangible assets that cannot be recognized separately from goodwill in the qualitative factors causing goodwill along with synergy effect expected from combination; • develop the identification procedures of intangible assets acquired in business combinations and recognize them (separately from goodwill) according to IFRS 3 and IAS 38; • describe the calculation techniques of recoverable amount of cash generating units used in goodwill impairment test, as well as assumptions and assessments applied in these procedures; • describe the fair value evaluation method of assets acquired and liabilities assumed in business combination. The gained results strengthen the assertions of practitioners and scientists regarding the difficulties of identification and evaluation of intangible assets acquired in business combinations and the importance of this issue. The results confirm our assumptions that consolidated financial statements prepared and presented by Georgian business combinations reliably reflect their financial state, performance, cash flow and changes in capital and corresponds to International Financial Reporting Standards. However, the results have also shown that there are some issues (recognizing and evaluations of intangible assets acquired; the transparency of goodwill impairment test) which business combinations have to consider in their financial accounting and include in consolidated financial statements.