The paper introduced how the two methods, IFRS 3 acquisition method (AM) and book-value method (BVM), which are commonly applied for a BCUCC, work. A BCUCC that affects non-controlling shareholders (NCS) is illustrated.

The feedback on the IASB’s preliminary views on the principle of selecting the measurement method are as follows:

• Neither method should apply in all cases:
  • Overall: most respondents agreed but some (from various jurisdictions) said a BVM should apply to all BCUCCs.
  • Users: almost all users (except users from China) agreed; almost all users from China said a BVM should apply to all BCUCCs
• Apply the AM to BCUCCs that affect NCS with limited exceptions:
  • Overall: many respondents agreed but many others (from various jurisdictions) disagreed
  • Users: all users (except users from China) agreed for the illustrative scenario above; almost all users from China said a BVM should apply
• Apply a BVM in all other cases:
  • Overall: many respondents agreed but many others disagreed, most of which said to apply the AM in specific circumstances (most commonly if the receiving entity has publicly traded debt)
  • Users: almost all users agreed for a pre-IPO scenario. For a scenario where the receiving entity has bank debt and publicly traded debt most users agreed but some said the AM should apply

The paper also set out the options for project direction:

• Recognition, measurement and disclosure requirements (Option 1)
  • Detailed requirements, for example, include which method(s) to apply in principle; exceptions, including exploring possible new exceptions in more detail; and how to apply a book-value method
  • Prescribing one approach would not meet all users’ information needs; and allowing entities a choice might meet user information needs in their jurisdiction but would not reduce diversity or always meet user information needs
• Disclosure-only requirements (Option 2)
• Discontinue the project and not develop any reporting requirements (Option 3)

The questions for discussion included the following: 

• What problems are caused by the gap in IFRS Accounting Standards for reporting BCUCCs?
  • Since the project was added to the IASB’s agenda in 2007, is practice largely settled or are there significant challenges in accounting for BCUCCs?
• Do IFRS IC members have specific examples where the reporting for a BCUCC resulted in financial statements that were misleading or failed to provide useful information
• Considering the criteria in the due process handbook, which options for project direction do IFRS IC members think the IASB should choose?

IFRS IC discussion

IFRS IC members shared their thoughts on different areas of the project:

Most of the IFRS IC members generally agreed that BCUCCs happened frequently and there is “diversity” in practice and lack of comparability. However, the diversity comes in different forms, it could be using AM vs BVM, or different methods of AMs or BVMs used, as a result of different fact patterns. Some IFRS IC members commented that they are not common in their jurisdictions. When they happen and BVM is applied, there is pressure from investors because it is comparable with buying by NCI where AM is used. On the other hand, another IFRS IC member sees entities are using BVM in BCUCCs in his jurisdiction. One IFRS IC member commented that there is no diversity for those that do not involve NCI while there is diversity for those NCI is involved and it is complicated to apply AM. One IFRS IC member commented that there was diversity in practice in the past but has largely settled now.

A few IFRS IC members commented that some BCUCCs resulted in misleading information or investors may expect more information (e.g. fair value even though BVM is applied) but they did not not give very specific examples on those.

Some IFRS IC members chose Option 1 for the project direction because they considered it useful to provide more guidance to prepares, and also for auditor and investors to reference to, while other IFRS IC members said Option 1 may not be able to address all fact patterns given there are too many different fact patterns. In addition, there are many players involved like regulators and jurisdictions, and the accounting requirements may not be able to cater for their needs. Therefore, they considered that Option 2 is the preferred option because it gives more flexibility while providing useful information by making disclosures. One IFRS IC member who opted for Option 1 said adding requirements in IFRS Accounting Standards does not mean mandating either one method. She suggested a decision tree could be provided to help users to make the decision. A number of IFRS IC member said their initial thought was Option 1 because it would be good to bring guidance into authoritative literature but considering this solution is time-consuming and not cost-effective, they opted for Option 2 eventually because it adds transparency and at the same time is more cost-effective, simpler and shorter time is needed. For Option 2, a few IFRS IC members suggested asking investors’ input on what kind of information they expect to find in disclosures. One IFRS IC member opted for a hybrid of Options 1 and 2, meaning giving indicators for consideration to determine which accounting method to use. None of the IFRS IC members considered the IASB should do nothing (i.e. Option 3).