Alibaba Group Initial Public Offering Case Study

Document Type:Case Study

Subject Area:Accounting

Document 1

Consolidated financial statements is a term that is used to refer to the financial statements of a group for instance, Alibaba Group in which Liabilities, assets, equity, expenses, income as well as the cash flows of the parent company and those of its subsidiaries are presented as that of a single business firm as an economic entity. According to the IFRS 10 that deals with the consolidated Financial Statements, it gives a guideline on the requirements that needs to be fulfilled to facilitate the preparation and presentation of the consolidated financial statements. This IFRS requires that entities do consolidate the financial statements of the entities it controls. The control of these entities or subsidiaries requires the exposure or rights to the variable returns and also the ability to have an impact on these returns through the power over the investors.

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For Alibaba or a company to consolidate its financial statements, it must meet some conditions as laid down in the IFRS 10. Codification is recognized by the FASB and it is applied to the nongovernmental entities. It is operative to both the interim and the annual periods that are ending after the September 15, 2009. The codification of the consolidated financial statements involves two models. These models are; i. Voting interest entity model ii. The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Additionally, if it is obvious that the owner of the equity will be needed to consolidate the legal business entity which is under the voting interest entity model, then it is needed to still evaluate if the legal business entity is a VIE and if it will be needed to consolidate the entity that is under the requirements of the VIE, since there exist measurement requirements that are different for the VIEs as well as the additional presentation plus the requirements of the disclosure that is under the model of the VIE in case certain conditions are fulfilled.

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On the other hand determining if both the power and economics standards have been gratified. The reporting business entity must exercise the substantial conclusion in making the determination. The ownership of Alibaba Group in relation to VIE is that the group adjustment of the structures of the VIE did not involve adjustment on equity as well as not affecting the mechanism of the Alibaba’s partner. S. who have invested in the with the Chinese VIE structures is the reluctance of the involved parties to disclose the whole structure of the transaction thus making the contractual enforcement to be difficult. This makes the damages caused by failure to disclose the transaction will be important for the investors. Also, the risk of instability of the VIE structure.

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