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Business Combinations Phase II

Date recorded:

The IASB was joined by the FASB via video link.

Non-controlling Interests and Goodwill

The Board was asked to decide on the measurement principle for non-controlling interests (NCI, historically called minority interest) in a business combination.

Paragraph 58 of the Business Combinations Exposure Draft (BC ED) states that NCI should be recognised and measured at acquisition date based on its proportional share of the fair values of the identifiable assets and liabilities plus its share of the fair value of goodwill.

The Board members in favour of this principle pointed out that measuring NCI at fair value follows from measuring all identifiable assets acquired (including the acquirer's share of goodwill) and liabilities assumed at its acquisition date fair value. Five Board members disagreed with the principle mainly for the reasons already outlined in the Alternative Views of the BC ED.

The Board members in favour of this principle pointed out that measuring NCI at fair value follows from measuring all identifiable assets acquired (including the acquirer's share of goodwill) and liabilities assumed at its acquisition date fair value. Five Board members disagreed with the principle mainly for the reasons already outlined in the Alternative Views of the BC ED.

Board members voted 9 to 5 in favour of the principle of full goodwill. However, the Board was then asked whether any exceptions to fair value measurement of NCI can be justified. The Board decided by majority of 9 votes to allow exceptions, particularly on the basis of measurement reliability.

The Board directed the staff to conduct further research on alternative measurement principles for NCI. This issue will be discussed at a future meeting.

Combinations between Mutual Entities

During their initial deliberations IASB and FASB concluded that the attributes of mutual entities are not sufficiently different to justify an accounting treatment different from that provided for other entities. Therefore, the boards decided to include mutual entities within the scope of the BC ED.

The Board reaffirmed its conclusion and clarified that the definition of mutual entities in the BC ED also includes cooperatives.

Accounting for business combinations achieved by contract alone or in absence of a transaction involving the acquirer

The BC ED proposes that business combinations that occur by contract alone or in the absence of a transaction involving the acquirer should be accounted for by applying the acquisition method.

The Board reaffirmed its conclusion.

In addition the Board was asked how to account for NCI under stapling arrangements. Interpretation 1002 of the Australian Accounting Standards Board describes a stapling arrangement as a situation in which a legal entity has "issued equity securities that are combined with ('stapled' to) the securities issued by another legal entity by virtue of a contractual arrangement between the entities". Consequently under the acquisition method the NCI would amount to 100% of the acquiree's fair value.

The Board indicated that the presentation of NCI under stapling arrangements should not result in a second category of NCI but that the definition of NCI might need to be modified. The staff was directed to conduct research on this issue.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.