Accounting Choices for the Investor's Related Party Transactions with Its Significant Investee

The related party transactions with significant investee are important means to manipulate investor's "statements profit". Setting accounting regulation to restrict the manipulation is necessary to insure the quality of accounting information. There are different choices to accounting for the transactions. This paper suggests that when preparing income statement of investor, the legal entity status of investor and its investee are disregarded; when preparing balance sheet of investor, the legal entity status of investor and its investee are kept; the different treatment to income statement and balance sheet should be recovered in consolidated financial statements if prepared.