Business combinations under common control

Date recorded:


The staff has been conducting a research project on business combinations under common control (BCUCC) with the objective of identifying whether the IASB should develop requirements for accounting for such transactions.  The staff has been examining different approaches to assess which method would provide more useful information about BCUCC.

The issue under consideration was that business combinations under common control were excluded from the scope of IFRS 3 Business Combinations and accordingly, entities were required to develop an accounting policy using the hierarchy in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The staff indicated that in practice entities applied either the acquisition method as set out in IFRS 3 or local GAAP (predecessor method). The staff noted in their research that there was diversity in practice. 

In June 2014, the Board set the scope of the project and tentatively decided that the project should consider (a) business combinations under common control that were currently excluded from the scope of IFRS 3; (b) group restructurings, and (c) the need to clarify the description of business combinations under common control, including the meaning of ‘common control’.

Agenda paper 23A provided a summary of the analysis performed by the staff including outreach and research activities. The staff noted the following:

  1. BCUCC were common in many jurisdictions
  2. in practice BCUCC were accounting for using the predecessor method;
  3. there were mixed views from users of financial statements as to whether the predecessor method or the acquisition method provided more useful information
  4. many interested parties other than users of financial statements supported using the predecessor method as a default method of accounting for BCUCC; and
  5. many interested parties, including users of financial statements, believed that the Board should provide guidance for BCUCC.

Agenda paper 23B provided a summary of research and outreach activities on how the predecessor method was applied and how it should be applied.  The staff noted that in applying the predecessor method, measurement of consideration in the form of shares and recognition in equity of any difference between consideration and transferred net assets were both questions about presentation in equity. The staff noted that the Board generally did not prescribe particular presentation in equity. Accordingly, the staff expressed their preliminary view that the Board should not prescribe particular presentation in equity in applying the predecessor method. The staff also noted that the new combined entity created by a BCUCC would not have existed before the date on which the BCUCC took place. Consequently, financial information about such an entity before that date would be information on a pro-forma basis and would not reflect the actual financial position and financial performance of that entity. Accordingly, the staff expressed their preliminary view that the combining entities should be combined from the date on which the BCUCC took place and comparative information should not be restated.

Next Steps (refer Paper 23)

The staff proposed to present to the Board in future meetings papers to discuss the following:

  1. advantages and disadvantages of applying the acquisition method set out in IFRS 3 and predecessor method to account for BCUCC;
  2. application of the predecessor method;
  3. staff recommendations on which method, or methods would be most appropriate for accounting for BCUCC, and why;
  4. remaining scope questions; and
  5. what the next due process step in the research project should be.


The Board did not make any decisions. There was also no indication about what direction the project might take. During the discussion, the concerns and comments raised were similar nature to those presented and discussed in earlier meetings.

The staff indicated that they had discussions with regulators (including IOSCO and ESMA) which confirmed that in most cases the predecessor method was being used. In general, regulators supported the predecessor method although they acknowledged there was diversity on the application of the method. One Board member added that the regulator in his jurisdiction (Brazil) also supported the predecessor method.

There were mixed views about the benefits of presenting comparative information in business combinations under common control. It was also mentioned that, for example, in IPOs comparative information were presented on a proforma basis and outside of the financial statements. Another issue noted was that IFRS 3 does not require comparative information when the acquisition method is applied. However, comparative information could be useful to investors in both cases regardless of the existence or not of common control. 

The staff was asked to explore what information investors consider useful and why.  Also, the staff was asked in future papers to define from which perspective the analysis was being done (i.e. who is the reporting entity).

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