Business combinations – Combinations by contract alone or involving mutual entities


In developing its proposals in Phase I of its business combination project, the IASB observed that:

  • differences between the ownership structures of mutual entities (such as mutual insurance companies or mutual cooperative entities) and those of investor-owned entities give rise to complications in applying the purchase method to business combinations involving two or more mutual entities
  • complications arise in applying the purchase method to combinations involving the formation of a reporting entity by contract alone without the obtaining of an ownership interest.

The Board decided to propose in ED 3 Business Combinations that until those issues are resolved as part of the second phase of the Business Combinations project, IAS 22 Business Combinations should continue to apply to the accounting for such transactions.

During its redeliberations of ED 3, the Board observed that continuing to apply IAS 22 to such transactions would result in them being classified either as unitings of interests or as acquisitions and considered this contrary to the conclusions reached in Phase 1 of the business combinations porject. The board decided to develop an interim solution, separate to the issue of IFRS 3 Business Combinations.


Current status of the project

This project was discontinued in 2004. The IASB decided not to finalise the proposals in the ED, but rather deal with the issues in Phase II of the business combinations project.


Project milestones

29 April 2004 Exposure Draft of Proposed Amendments to IFRS 3 Business Combinations – Combinations by Contract Alone or Involving Mutual Entities published
Comment deadline 31 July 2004
September 2004 IASB decided not to proceed with the proposals Topics to be dealt with as part of business combinations (phase II) project

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