The IASB published its Discussion Paper Business Combinations under Common Control in November 2020. The IASB’s comment deadline is 1 September 2021.
The Discussion Paper proposes to amend IFRS 3 Business Combinations, to include requirements for business combinations under common control (BCUCC) as it is not currently specified.
BCUCC occur when a business is transferred from one company to another company within the same group. In the example below Company C is transferred from one company to another, within the same company group (Company P group). Note that from a group point of view nothing has changed – the group still contains the same assets and liabilities before and after. However, they have been reorganised.
Today, in the absence of guidance, some receiving companies (B) will choose to measure the assets and liabilities of Company C received in the combination at book value. Other receiving companies would choose to follow the IFRS 3 acquisition method and take on Company C at fair value. This creates inconsistency.
In overview the IASB’s preliminary views are that:
1. When the receiving company is listed, has non-controlling shareholders or meets certain other conditions, it should use the IFRS 3 acquisition method of accounting (with some limited exceptions).
2. When the receiving company is not listed, not preparing for listing, and does not have non-controlling shareholders, it should use the book value method of accounting, further details of which are specified in the Discussion Paper.
Our preliminary outreach suggests that business combinations under common control are most frequently administrative exercises to streamline the group structure, reflect other internal restructurings or performed for tax purposes and that accounting for the majority of these transactions is under local GAAP.
The planned outreach on this project will include a pre-recorded educational webinar, a stakeholder survey, and public consultation on our draft comment letter.
If you would like to contribute to outreach work on this project, please email UKEndorsementBoard@endorsement-board.uk.