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IFRS 3 – Business combinations under common control (finalised)

Date recorded:

The Committee received a request for guidance on a common control transaction. More specifically, the submission considered by the Committee provided a fact pattern that illustrated a type of a common control transaction in which a parent company (Entity A), which is wholly owned by Shareholder A, transfers a business (Business A) to a new entity (referred to as Newco), also wholly owned by Shareholder A. The submission requested clarification on (a) the accounting at the time of the transfer of the business to Newco and (b) whether an imminent IPO that might occur after the formation of Newco is considered relevant in analysing the transaction under IFRS 3.

The Committee heard comment letter feedback to its tentative agenda decision published after the July 2011 meeting which supported the decision not to take this item to its agenda (although many disagreed with the wording of the tentative agenda decision as incorrectly classifying the submission as a business combination, and further, potentially providing a de facto interpretation which may be incorrectly interpreted as applying to other fact patterns). Thus, the Committee decided that the accounting for a fact pattern involving common control transactions is too broad in practice to be analysed through an agenda decision or to be addressed through an interpretation or through an annual improvement.

The Committee determined that the specific fact pattern submitted would be better considered within the context of a broader project on accounting for common control transactions, which the IASB is planning to address at a later stage. Consequently, the Committee decided not to take this issue to its agenda.