IASB consults on changes to IFRS 3 for mergers and acquisitions within a group

12 March 2021

The International Accounting Standards Board (IASB) has launched a public consultation on possible new accounting requirements in relation to transactions that involve transfers of businesses between companies within the same group.

Mergers and acquisitions involving companies within the same group are very common, but companies report similar business combinations in different ways. This diversity makes it difficult for investors to understand the effects of such transactions and to compare companies that undertake similar transactions.

The IASB is considering whether and when the acquisition method should be used, and when a prescribed book-value method should be used for business combinations under common control. Reporting by the controlling party would not be affected.

Acquisition model

The acquisition method would be used when the receiving company has non-controlling shareholders.

  • Generally, the method should be applied just as set out in existing IFRS Standards.
  • This method measures assets and liabilities received in the combination at fair value and recognises goodwill.

The cost of applying the acquisition method might not always be justified for privately held companies and therefore special conditions for such companies are suggested:

  • An optional exemption - a privately held receiving company would be permitted to use a book-value method if it has informed all its non-controlling shareholders that it proposes to use that method and they have not objected.
  • A related-party exception - a privately held receiving company would be required to use a book-value method if all non-controlling shareholders are related parties of the company.

Book-value method

Where the receiving company did not have non-controlling shareholders, book-value information would be provided using one single prescribed method:

  • the receiving company would measure the assets and liabilities received at their book values reported by the transferred company;
  • consideration paid in assets would be measured at the book values of those assets;
  • consideration paid by incurring a liability would be measured at the amount determined on recognition of that liability, applying IFRS Standards;
  • how consideration paid in the receiving company’s own shares should be measured would not be prescribed;
  • the difference between the consideration paid and the assets and liabilities received would be recognised in equity (consistent with current practice);
  • a transferred company would be included in the receiving company’s financial statements from the date of combination and, therefore, should not restate its pre-combination information; and
  • the receiving company should disclose the amount recognised in equity for the difference between the consideration paid and the book value of the assets and liabilities received, and the component, or components, of equity that includes that difference.

The deadline for responses to the discussion paper: Business Combinations under Common Control is 1 September 2021.

For further information, please contact Helen Jones or Paul Merris.