Improvements to Accounting for Common Control Combinations [Completed]

Proposed Effective Date:

These amendments apply prospectively to annual financial statements relating to fiscal years beginning on or after January 1, 2025. Earlier application is permitted. An entity applies these amendments to transactions entered into from the beginning of the fiscal year in which the amendments are first applied.

Last updated:

September 2023

 

Overview

In 2019, the AcSB approved a project to research related party combinations and decided that the it should include business combinations under common control, business combinations not under common control and combinations not considered a business (i.e., acquisitions of assets). It also decided that the research should focus on better understanding the types and purpose for different types of related party combinations, and the challenges with accounting for these transactions.

The AcSB directed the staff to form a working group of tax and assurance practitioners from across Canada that specialize in these transactions to assist in the research activities.

The AcSB also considered the interaction between this research project and its current combinations project for not-for-profit organizations. Accordingly, the Board directed the staff to include related party combinations that occur between not-for-profit organizations within the scope of this project’s research activities.

In 2022, the AcSB received feedback from its Private Enterprise Advisory Committee on how entities are currently accounting for financial instruments acquired in a common control transaction and which principles (Section 3840, Related Party Transactions, or Section 3856, Financial Instruments) are more appropriate for the measurement of these instruments.

The Board discussed this feedback and agreed to issue a narrow scope amendment to clarify that financial instruments acquired in a common control transaction should be measured using the principles in Section 3840.

On No­vem­ber 1, 2022, the AcSB re­leased an Exposure Draft of pro­posed amend­ments to "Re­lated Party Trans­ac­tions", Sec­tion 3840. The pro­posed amend­ments would:

  • allow all of Section 1582, Business Combinations, to be used for certain business combinations under common control by removing the reference to “exchange amount” in paragraph 3840.44(a);
  • allow an option in paragraph 3840.44(b) to retrospectively restate all prior periods when carrying values are used to account for a combination or prospectively account for these transactions; and
  • clarify that financial assets acquired or financial liabilities assumed when a business is transferred between two enterprises under common control will be measured using the principles in paragraph 3840.44.

In September 2023, the AcSB amended paragraphs 3840.02, 3840.03, 3840.07A, 3840.07B and 3840.44. These amendments apply prospectively, as defined in Accounting Changes, paragraph 1506.05(g), to annual financial statements relating to fiscal years beginning on or after January 1, 2025. Earlier application is permitted. An entity applies these amendments to transactions entered into from the beginning of the fiscal year in which the amendments are first applied.

 

Other developments

September 2023

On September 1, 2023, the final amendments to Section 3840 and Section 3856 in respect of this project were issued to the CPA Canada Handbook.

May 2023

At its meeting on May 24, 2023, the AcSB indicated that it plans to issue the amendments in September 2023.

November 2022

On November 1, 2022, the AcSB released proposed amendments to "Related Party Transactions", Section 3840. The proposed amendments address accounting for a combination between enterprises or businesses under common control and financial assets acquired or financial liabilities assumed in a combination between enterprises under common control. Comments are requested by January 31, 2023.

December 2019

The AcSB staff updated its work plan for this project to note that the AcSB is currently carrying out research on related party combinations.

March 2019

At its meeting on March 6-7, 2019, the AcSB approved a project to research related party combinations.

 

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