Research project: Business combinations under common control — status update

Date recorded:

The IASB identified ‘Business Combinations under Common Control’ (BCUCC) as one of the priority research projects. Paper 14 is the first paper of the BCUCC research project.

The first steps in the project are to understand the points made in the EFRAG Discussion Paper, to understand which issues accounting firms and national standard-setters might have, to identify sub-topics for research and eventually release a discussion paper.

One Board member was concerned that the research project does not deal with issues that are raised by market regulators. Their needs should also be heard.

The IASB wants to set the focus to restructurings that include the creation of a New Company (NewCo).

While the accounting firms highlighted the need to include other transactions between entities under common control in the research projects, several board members disagree. Only business combinations under common control are scoped out of IFRS 3 Business Combinations – for all other transactions the relevant standards apply. One board member thinks that there is no demand for guidance on these transactions as these intra-group transactions would only be presented in separate financial statements since they would be subject to elimination in consolidated financial statements.

The Board was surprised to find the pooling of interests method in paragraph 16 as it was eliminated from the IFRS standards.

Several Board members raised awareness that the achieved convergence of IFRS 3 with US GAAP could be endangered by an amendment of IFRS 3 with regard to BCUCC. Staying converged should be one of the concerns in this project.

One Board member suggested involving the Chinese standard-setter as they have dealt with the issue for a while.

Another board member pointed out that it is vital that a thorough basic research should be performed even if it takes some time. The IASB has learned from the development of other Standards that many issues were raised towards the end of the development phase while this could have been avoided with sufficient research of the basics. The Board agreed and mentioned the enormity of the project – not only for separate financial statements.

One board member said that prominent market transactions have occurred in the recent past and that they should be examined with regard to the project.

One Board member asked for the timetable, however the project manager confirmed that in this early phase of the project there is no timetable, yet.

Several Board members pointed out that the staff should not examine tax regimes in deep detail as this is very time-consuming and the effect for the project is questionable. Most likely, they would only be caught up in transfer pricing issues.

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