Business Combinations.

Date recorded:

Staff presented an overview of the issues in respect of Business Combinations. The focus was on comparative treatments in the liaison countries.

  • The Board concluded that there should be two phases to this project.
  • Phase one would address:
    • Whether there should be one or two methods of accounting for business combinations. Board member comments suggest substantial support for purchase accounting and prohibition of the pooling of interests method. There was general consensus that true mergers do not exist and having only one method will avoid ongoing definitional issues. The Board also discussed the fresh start method as an alternative to uniting of interests. While deciding to investigate this approach further, the Board noted that by recording fair values and possibly goodwill for both entities, this method is likely to have little acceptance.
    • Definition of business combinations.
    • Definition of transactions between enterprises under common control so that these can be scoped out of accounting for business combinations.
    • Business combinations involving more than two entities.
    • Goodwill and intangibles: subsequent measurement, impairment testing, and amortisation.
    • Negative goodwill.
  • Phase two would include:
    • Accounting for interests in joint ventures.
    • Joint venture financial statements.
    • Accounting for transactions between entities under common control.
    • Other related projects include:
    • Acquisition provisions: To be included in either the improvements project or phase one of the business combinations project.
    • Purchased research and development in a business combination to be dealt with in the research and development project.
    • Reverse acquisitions: Practical guidance is needed, perhaps to be issued by the SIC.
  • The Board accepted that this was a high priority project but that it could not commit to the project before consultation with the Standards Advisory Council.

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