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EFRAG and OIC issue feedback statement regarding their discussion paper on business combinations under common control

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image
  • OIC (Italy Organismo Italiano di Contabilità) (lt blue) Image

23 Dec 2012

In October 2011, the European Financial Reporting Advisory Group (EFRAG) and the Organismo Italiano di Contabilità (OIC) published a discussion paper 'Accounting for Business Combinations under Common Control'. They have now released a feedback statement with an analysis of the comment letters received, together with EFRAG’s and OIC’s responses to the issues raised by respondents and the way they have decided to further develop the project.

Most of the respondents welcomed the discussion paper on business combinations under common control (BCUCC) as an introduction to an important debate; however, they raised a number of concerns and suggested that more work was needed:

  • There were mixed views on whether the DP achieved all of its objectives. Although there was agreement about the DP stimulating debate on BCUCC.
  • A number of respondents noted that the scope of the DP was too narrow and additional issues should have been considered (especially other types of transactions under common control).
  • Respondents also expressed the view that the project should include in its scope how to account for BCUCC in the separate financial statements.
  • Many respondents stated that the project’s effective development would be greatly aided by considering real-life examples of BCUCC.
  • Most respondents asked for a common definition of BCUCC transactions to be provided.
  • Mixed views were expressed about the approach taken in the DP. Some supported the approach taken. Others expressed the view that the analysis should not have been limited to the current IFRS literature, but rather should have taken it as a starting point.
  • The majority agreed that the information needs of users are an important consideration when determining an accounting method for BCUCC.
  • Regarding the accounting methods used in practice, almost all respondents noted that either predecessor or acquisition accounting are prevalent.
  • Generally respondents supported diversity of accounting treatment when facts and circumstances merit it. However, it was a common view that whatever method is chosen, it should be applied consistently.
  • Some respondents held the view that the economic substance of BCUCC transactions should determine the accounting method and the recognition of certain items as part of equity.

EFRAG and the OIC agreed that further work in their overall project on BCUCC is needed and would encompass the review of real- life examples to see whether they provide a basis for categorizing BCUCC into different types of transactions, for which different accounting treatments should apply. If this is successful, indicators of difference in economic substance may be eventually drawn from this exercise. Also, EFRAG and OIC will work further on defining what a business combination under common control is.

Please click for the following information on the EFRAG website:

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