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Business Combinations under Common Control


​In 2012, the IASB added the project Business Combinations under Common Control ('BCUCC') to its research agenda. BCUCC are currently excluded from the scope of IFRS 3 Business Combinations. The absence of a specifically applicable IFRS Standard created diversity in practice in preparing financial statements.

From 2014 to 2016, the IASB staff conducted several research and outreach activities to better understand the accounting practice for BCUCC.

In 2016, the IASB decided that the scope of the project should include transactions under common control in which the reporting entity obtains control of one or more businesses, regardless of whether IFRS 3 Business Combinations would identify the reporting entity as the acquirer. 

The project is focused on how to account for a BCUCC in the financial statements of the receiving entity. The objective of the IASB's project on BCUCC is to explore possible reporting requirements for BCUCC in order to reduce diversity in practice, improve transparency of the reporting entity and provide relevant and comparable information to users of financial statements.

The IASB published the discussion paper on 30 November 2020 with a comment period of 270 days and a comment deadline on 1 September 2021.

EFRAG Draft Comment Letter

​​In its draft comment letter, EFRAG welcomes the IASB's discussion paper on Business Combinations under Common Control (BCUCC) and the IASB's efforts to explore possible reporting requirements for BCUCC. 

Scope of the project

EFRAG supports the proposed scope of the discussion paper to include all transfers of businesses under common control. However, EFRAG considers that the IASB should better define 'group restructurings' without labelling them BCUCC when they do not meet the description of a business combination in IFRS 3 Business Combinations. EFRAG also suggests that the IASB considers common control transactions conceptually in a future project, including the effects on the separate financial statements.

Selecting the measurement​​ method

EFRAG agrees that a single measurement method is not appropriate for all BCUCC. EFRAG also supports the application of the acquisition method to BCUCC that affect the non-controlling shareholders of the receiving company (with limited exceptions). However, EFRAG proposes a few modifications to the IASB’s decision tree on when to apply each method. EFRAG is consulting constituents on two possible modifications:

  • ​Reversing Step 1 and Step 2 of the IASB’s diagram; and

  • Expanding the scope of entities included in the proposed new Step 1 (three different options)

EFRAG cautions that selecting the measurement method relies on the definition of a ‘public market,’ which includes both regulated and unregulated markets. EFRAG suggests that the IASB clarifies the meaning of the term ‘traded’.

EFRAG supports the optional exemption and the related-party exception to the acquisition method for privately-held entities with non-controlling shareholders. However, EFRAG is consulting constituents on whether the related-party exception should be optional rather than required.

Applying the ac​​​quisition method and a book-value method

EFRAG generally agrees with the IASB's proposals on how to apply the acquisition method. EFRAG agrees that the IASB should not develop a requirement for the receiving company to identify, measure and recognise a distribution from equity but rather recognise any difference between the fair value of consideration paid and the fair value of identifiable acquired assets and liabilities entirely as goodwill.

However, EFRAG is consulting constituents on whether to recognise a contribution to equity when the consideration paid is lower than the identifiable acquired assets and liabilities measured at fair value by considering the following:

  • Alternative 1 - support the rationale for the IASB proposals to recognise the difference in equity as a contribution to equity; or

  • Alternative 2 - support consistency with the requirements in IFRS 3 and recognise the difference as a gain in profit or loss.

EFRAG also generally agrees with the IASB's proposals on how to apply a book-value method. However, EFRAG is consulting constituents on:

  • measurement of assets and liabilities received: whether the carrying amounts in the consolidated financial statements of the transferor or the carrying amounts in the financial statements of the transferred company provide more relevant information for users;

  • ​pre-combination information: whether prospective reporting of the BCUCC  is in conflict with current practice or with current reporting requirements in some jurisdictions.

Disclosure requ​​irements

EFRAG supports the proposed disclosure requirements for BCUCC accounted for under both the acquisition method and a book-value method.

History - EFRAG proactive work in 2011

A working group was set-up by EFRAG in co-operation with the OIC (Organismo Italiano di Contabilita - Italian Standard Setter) in order to develop a discussion paper to stimulate debate at an early stage in the standard setting process. 

The Discussion Paper Accounting for Business Combinations under Common Control (the DP) represented EFRAG's and the OIC's first step in their BCUCC project. The scope of the DP was limited to BCUCC in the consolidated financial statements of the acquirer. The DP was issued in October 2011, with a comment deadline 30 April 2012. The DP is available here.

Comment letters were received from respondents within and outside Europe, which demonstrated the importance of, and interest in, this initiative. 

In addition, EFRAG together with a number of National Standard Setters, organised four outreach events in Europe. The consolidated feedback on those events can be found here.  

After considering the comments received on the DP, EFRAG and the OIC issued in December 2012 a feedback statement on the DP presenting the analysis of comment letters received, together with EFRAG's and the OIC's responses to the issues raised by respondents. The feedback on the comments is available here.

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