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IFRS 3 — Identification of the acquirer in accordance with IFRS 3 and the parent in accordance with IFRS 10 in a stapling arrangement

Date recorded:

The issue addressed in this paper relates to a submission received by the IFRS Interpretations Committee seeking clarification on the interaction of the requirements in IFRS 3 for identifying an acquirer with the requirements in IFRS 10 for deciding whether control exists.

The submitter asks for clarification about whether an ‘acquirer’ identified for the purpose of IFRS 3 (2008) is a ‘parent’ for the purpose of IFRS 10 in circumstances in which the business combination is achieved by contract alone, such as a stapling arrangement, with no entity in the business combination having control as defined in IFRS 10.

In the course of our analysis of this issue, the staff identified three issues that need to be considered to analyse this issue.

Issue 1: whether an entity needs to hold an investment in another entity in order to control that other entity

Question 1:  Does the Interpretations Committee agree that an entity does not need to hold an investment in another entity in order to control that other entity?

The Interpretations Committee agreed.

Issue 2: does a combining entity always obtain control as defined in IFRS 10 in a business combination under IFRS 3 (2008)?

Question 2:  Does the Interpretations Committee agree that a stapling arrangement could be a business combination even if it does not involve one of the combining entities obtaining legal control over the other combining entity(ies)?

Further, does the Interpretations Committee agree that a stapling arrangement that unifies the ownership and voting interests of the stapled entities is a business combination and the acquirer is the combining entity that obtains economic control over the other combining entity(ies)?

The Interpretations Committee agreed.

One member noted that for the second part of the question, they agree but believe that it is not only in these circumstances.  It is also in circumstances as highlighted by the IASB when there is a true merger. 

Issue 3: should an acquirer under IFRS 3 (2008) always be viewed as a parent under IFRS 10?

Question 3:  Does the Interpretations Committee agree that an acquirer identified for the purposes of IFRS 3 (2008) should be identified as the parent, and therefore prepare consolidated financial statements of the group, in accordance with IFRS 10?

The Interpretations Committee agreed.

Question 4:  Does the Interpretations Committee agree with the staff recommendation that the Interpretations Committee should not add this issue to its agenda? If so, does the Interpretations Committee agree with the wording of the tentative agenda decision in Appendix E of this Agenda Paper?

The Committee agreed with the Rejection, subject to certain wording amendments in the Rejection notice.

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