Suppose Entity A acquires Entity B in a business combination and all the considerations have been completed by 31 December 2007 except that government approval which was still pending as at year end. Should entity A consolidate Entity B as at 31 December 2007?
I believe the answer lies in the issue of control. If the acquirer still does not have control, i.e. voting rights, directorship, active management, no consolidation should be done until Control is obtained. In the meantime, the Acquirer can book in the investments in subs as a prepayment. Hope this helps.
Let us look into the three types of financial reporting:
1) Management Set of Accounts (MSA)
2) Statutory Accounting
3) Tax Accounting
Considering your scenario, legally the account cannot be merged in statutory and tax books since it was not approved by the law / Govt., hence it can be consolidated in MSA and presented for the management review.
On the other hand, M&A cost as of that date can be represented in Statutory and Tax books of Entity A with the additional notes about Entity B.
If the approval was obtained before the preparation of the financial statements, it would have to be consolidated. If not and the government approval is that important AND there is no way of knowing whether it will be yes or no the company should not consolidate, but provide pro-forma consolidated statements in the notes (similar to showing the effect of all year consolidation of new acquisitions in the year),
In my humble option you should consolidate if you obtain full control over subsidiary (ie. goverment approval) before you made up the financial statment.
So if you go public with you financial statement on April 2008 and the goverment approval was given in March 2008 you should consolidate.