Business combinations under common control

Date recorded:

Education session — Agenda paper 23

This was an education session. The Board last discussed the business combination under common control (BCUCC) project in April 2016. The purpose of the session was to provide the Board with a status update.


Tentative decision on scope of the BCUCC project

In June 2014, the Board tentatively decided that the project should consider:

  • BCUCCs that are currently excluded from the scope of IFRS 3;
  • group restructurings; and
  • clarifying what constitutes a BCUCC and what is meant by ‘common control’.

The Board also tentatively decided to prioritise considerations regarding transactions that involve third parties, e.g. IPO cases, because this is an area of particular concern for securities regulators.

Research and outreach performed to date

The staff had performed a range of research and outreach activities with different types of interested parties from various jurisdictions, including users of financial statements, regulators, standard-setters, preparers and accounting firms. Those activities focused on:

  • which methods are applied in practice to account for BCUCCs, and which methods stakeholders think should be applied to provide useful information about BCUCCs; and
  • how the predecessor method is applied in practice, and how stakeholders think it should be applied to provide useful information. Under the predecessor method, the acquirer measures the net assets acquired at their historical carrying amounts.

In practice, BCUCCs are typically accounted for using the predecessor method; however, in a few cases, the acquisition method as set out in IFRS 3 is also used. Feedback from outreach indicated that stakeholders generally favoured using the predecessor method as a default to account for BCUCCs; however, there were mixed views on whether other methods would be more appropriate in certain circumstances. Feedback also indicated that there is diversity in practice as to how the predecessor method is applied, for example:

  • should the historical carrying amounts of the acquired net assets be based on those recognised by the controlling party or by the transferred entity?
  • from which date should the combining entities be combined, i.e. should comparative information be restated as if the combined entity had always been in existence?
  • how should the consideration transferred be measured? and
  • where in equity should the difference between the consideration transferred and the acquired net assets be recorded (although many stakeholders believed this to be a jurisdictional issue that is addressed by local legislation and should not be prescribed by the Board).

Next steps

The Staff plan to discuss the following topics at future Board meetings:

  • Scope of the project, including the types of transactions that are included in the scope and the meaning of ‘common control’;
  • Alternative methods to account for BCUCCs, including:
    • how many methods should be explored – a single method or different methods for different transactions;
    • Which methods should be explored; and
    • how the subsets of transactions to which different methods are applied should be defined.
  • Application of the predecessor method to address the diversity noted above.

The Staff plan to publish a discussion paper for BCUCC in 2018.


There was significant discussion about the proposed scope of the project. The Board generally favoured keeping the scope narrow with the aim of reducing diversity in practice, as opposed to conducting a fundamental review from scratch.

Various members believed that if the Board were to develop the predecessor method further, there must be a conceptual justification for using this method rather than choosing it because most entities are already using it. For example, if Sub A has acquired a fellow subsidiary at fair value, the most relevant information for the users of Sub A’s financial statements would arguably be the fair value of the assets and liabilities acquired (i.e. the cost paid by Sub A), and not the historical carrying amounts of those items. Many Board members believed that the focus should be on what information is useful to the users of the financial statements of Sub A as opposed to the users of the financial statements of the ultimate controlling party.

Having said that, a couple of Board members observed that the use of predecessor accounting is prevalent because of practical rather than conceptual reasons. The ultimate controlling party would use the method that is most efficient from the group’s point of view and using predecessor accounting saves on cost and time on having to value the net assets and having to deal with the resulting consequences e.g. deferred tax.

The Board also suggested that the Staff liaise with the regulators and other parties in the capital market to ensure that the scope of the project would adequately address their concerns.

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