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Business combinations under common control

Date recorded:

When to apply which measurement approach (Agenda Paper 23A)


In previous Board meetings, the Board directed the staff to develop an approach based on the acquisition method for business combinations under common control that affect non-controlling shareholders of a receiving entity. The Board also tentatively decided that it could pursue a different approach, such as a predecessor approach, for other transactions within the scope of the project.

Staff analysis

The staff observe that transactions within the scope of the project do not form a single homogeneous population just because common control is present in all of them. Instead, some transactions within the scope of the project result in change in ownership interests in the underlying net assets for the owners of the receiving entity and are similar to acquisitions in the scope of IFRS 3, while other transactions within the scope of the project do not result in change in ownership interests in the underlying net assets for the owners of the receiving entity and are different from acquisitions in the scope of IFRS 3 to varying degrees.

Staff recommendation

The staff recommended that the forthcoming Discussion Paper (DP) propose that:

  • a) An acquiring entity be required to account for a business combination under common control by applying either a current value approach based on the acquisition method or a predecessor approach.
  • b) A current value approach should be required for transactions affecting non-controlling shareholders of the acquirer, with two exceptions:
    • i) If all of the non-controlling shareholders are related parties of the acquirer a predecessor approach would be required; or
    • ii) if the equity instruments of the acquirer are not traded in a public market and all non-controlling shareholders have been informed about, and do not object to, the application of a predecessor approach, the acquirer can elect to apply a predecessor approach.
  • c) The predecessor approach would apply for all other transactions within the scope of the project.

Board discussion

Whether to apply a single measurement approach for all transactions within the scope of the project

Some Board members suggested to have more than one measurement approach to all transactions by starting from one model and then consider other possibilities in a decision tree, which may include exemptions. Other Board members emphasised the risk of having a big population of exemptions.

The current value and predecessor approaches were defended by different Board members, but they all agreed that the guidance should not offer an accounting choice.

One example was considered, such as the parent company (private) with no non-controlling shareholders acquiring a business at the beginning of the year, and then later on in the same fiscal year the parent becomes public and therefore non-controlling shareholders become important. Then the parent company acquires another business after becoming public. By the year-end two separate accounting policies would be disclosed for the same transaction.

The staff recommendation was supported by a majority of the Board members.

When to apply a current value approach

The discussion started with cost constraints and whether an exemption should be provided for private entities. Board members agreed, but subject to understanding: that clear information should be provided to the equity investors; cost issues; and the implications of the revised Conceptual Framework.

Some Board members highlighted the need to address the issue that it is almost impossible to obtain agreement from 100% of the shareholders. Hence, it was not practical to allow one single shareholder to influence the conclusion simply because that shareholder does not agree with the approach proposed. A Board member suggested that if shareholders do not respond within a specified period of time that the entity could be entitled to assume that shareholders agree with the proposed transaction.

A Board member mentioned the importance of not having related parties of the receiving entity interfering and influencing the decision makers.

11 board members agreed with the staff’s recommendation.

When to apply a predecessor approach

There was not much discussion on this recommendation and all of the Board members supported the staff’s recommendation.

Related Topics

Correction list for hyphenation

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