Business Combinations Under Common Control

IFRS Accounting Standards do not specify how to account for business combinations involving companies controlled by the same party. In the absence of specific requirements, companies tend to provide little information about such combinations and report on them in different ways. This diversity in practice makes it difficult for users of financial statements to understand how a business combination under common control affects a company and to compare companies that undertake similar transactions.

The IASB’s research project considers whether and, if so, how to fill the gap in IFRS Accounting Standards.

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 Company A to Company B, within the same group (headed by Company P). From a group point of view nothing has changed – the group still contains the same assets and liabilities as before. However, they have been reorganised.

Today, in the absence of guidance, some receiving companies (B) 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 recognise Company C at fair value. This creates inconsistency.

Key IASB Proposals

In overview, the IASB’s preliminary views proposed a multipath approach to accounting for BCUCC in the receiving company.  Key proposals include:

1. When the receiving company is listed or has non-controlling shareholders, it should use the IFRS 3 acquisition method of accounting (with some limited exceptions).
2. When the receiving company is not listed, 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. 
3. Specifying the book value that should be used, if using the book value method.
4. Clarifying how any difference between consideration and the value of the assets and liabilities acquired should be accounted for.
5. Specifying disclosure requirements for BCUCC.

To inform the UKEB response to the Discussion Paper, the UKEB performed outreach including an educational webinar, a stakeholder survey and public consultation on our draft comment letter.

Our outreach suggested that BCUCC were most frequently administrative exercises to streamline the group structure, reflected other internal restructuring or were performed for tax purposes, and that accounting for the majority of these transactions is under local GAAP.

Discussion Paper Video with IASB and UKEB

The UKEB Secretariat launched a video guide on the IASB’s DP/2020/2 Business Combinations Under Common Control.

Jointly hosted by the UKEB Secretariat and the IASB technical staff, the video provides an overview of the proposals in the discussion paper, gives an insight into the IASB thinking behind these proposals and reflects on some of the stakeholder feedback received to date. The presentation slides can be found below and the video can be seen on vimeo.

See the BCUCC presentation for video.

On 26 August 2021, the UKEB published its final comment letter on the IASB Discussion Paper DP/2020/02 Business Combinations under Common Control. A link to the letter can be found at the foot of this page.

Overall, the UKEB supports the proposals in the discussion paper as they should provide users of financial statements with more useful information on BCUCC. In particular, the UKEB expects the proposals to reduce diversity in accounting practice, improve transparency and lead to greater comparability between financial statements.