Business Combinations under Common Control

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Consultation has concluded

IFRS 3 Business Combinations requires the acquisition method for business combinations but does not address business combinations under common control as this is scoped out.


Stakeholders asked the IASB to address this gap in IFRS 3 as it has led to diversity in practice. The IASB issued Discussion Paper – Business Combinations under Common Control in November 2020 and is seeking feedback on its preliminary views until September 1, 2021. The proposal focuses on filling the gap in IFRS 3 for transfers of businesses under common control.


The proposals aim to:

  • determine which method (acquisition method vs. book-value method) should be applied so that companies undertaking similar transactions would apply the same accounting policies; and
  • address disclosures and financial reporting of these transactions so they will become more transparent and more comparable.

IFRS 3 Business Combinations requires the acquisition method for business combinations but does not address business combinations under common control as this is scoped out.


Stakeholders asked the IASB to address this gap in IFRS 3 as it has led to diversity in practice. The IASB issued Discussion Paper – Business Combinations under Common Control in November 2020 and is seeking feedback on its preliminary views until September 1, 2021. The proposal focuses on filling the gap in IFRS 3 for transfers of businesses under common control.


The proposals aim to:

  • determine which method (acquisition method vs. book-value method) should be applied so that companies undertaking similar transactions would apply the same accounting policies; and
  • address disclosures and financial reporting of these transactions so they will become more transparent and more comparable.
Discussions: All (6) Open (6)

  • Question 1

    about 3 years ago
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    4 Responses

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    The IASB’s current view for business combination under common control (BCUCC) accounting is that if the transaction affects non-controlling shareholders of the acquirer and the acquirer’s shares are publicly traded, the acquisition method applies.  


    What are your thoughts about this approach? (Additional context is available in the Discussion Paper on page 36) 


  • Question 2

    about 3 years ago
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    1 Response

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    If the acquirer’s shares are privately held, the book-value method applies if all non-controlling shareholders of the acquirer: 

    • have been informed and they don’t object to using the book-value method; or 
    • are related parties of the company.  

    What are your thoughts about this approach? (Additional context is available in the Discussion Paper on page 36) 



     


  • Question 3

    about 3 years ago
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    The IASB’s current view is that companies whose shares are traded publicly should always apply the acquisition method if there is non-controlling interest. They are not permitted to apply the related-party exception or the opt-out approach available to private companies.  


    What are your thoughts about this? 


  • Question 4

    about 3 years ago
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    When applying the acquisition method to a BCUCC, the IASB’s current view is that the acquirer recognizes any excess fair value of the identifiable acquired assets and liabilities assumed over the consideration paid as a ‘contribution’ to equity, rather than a bargain purchase gain in the statement of profit or loss.  


    What are your thoughts about this approach?  


  • Question 5

    about 3 years ago
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    The IASB’s current view is that, when applying book-value method to a BCUCC, the acquirer should measure the assets and liabilities received using the transferred company’s book values. Do you think an option to use the parent company’s book values should be available? Are there other options that could be considered? Share your views with us.  


  • Question 6

    about 3 years ago
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    When applying a book-value method to a BCUCC, the receiving company includes in its financial statements the assets, liabilities, income, and expenses of the transferred company on a prospective basis from the combination date, without restating pre-combination information. Do you think an option to restate comparatives to reflect the result of the companies as if they were combined in the prior year would be helpful? In what circumstances would this option be helpful?