IASB consults on possible new accounting requirements for mergers and acquisitions within a group

The International Accounting Standards Board (Board) has launched a public consultation on possible new accounting requirements for mergers and acquisitions involving companies within the same group – business combinations under common control.

IFRS 3 Business Combinations set outs reporting requirements for mergers and acquisitions—referred to as business combinations in IFRS Standards. However, that Standard does not specify how to report transactions that involve transfers of businesses between companies within the same group. Such transactions are common in many countries around the world.

As a result of this gap in IFRS Standards, companies report similar business combinations in different ways. In some cases, they provide fair-value information about the acquired company and in other cases, they provide book-value information. Moreover, book-value information is provided in various ways and is often insufficient. This diversity in practice makes it difficult for investors to understand the effects of such transactions on companies that undertake them and to compare companies that undertake similar transactions.

The Discussion Paper Business Combinations under Common Control sets out the Board's preliminary views on how to fill this gap in IFRS Standards. The Board's aim is to reduce diversity in practice and to improve transparency and comparability in reporting these transactions.

The Board's view is that companies should provide similar information about similar business combinations when the benefits of that information to investors outweigh the costs of providing it. Specifically, the Board is suggesting that fair-value information should be provided when a business combination under common control affects shareholders outside the group. That suggestion is consistent with the existing requirements in IFRS 3 for mergers and acquisitions between unrelated companies. In all other cases, the Board is suggesting that book-value information should be provided using a single approach to be specified in IFRS Standards.

The Discussion Paper seeks feedback on the Board's preliminary views on when and how each approach should be applied.

Hans Hoogervorst, Chair of the International Accounting Standards Board, says: “Stakeholders have been vocal about the need to establish requirements for business combinations involving companies under common control, particularly for listed companies or companies preparing for listing. Our suggested approach would give investors the information they need without imposing unnecessary costs on companies.”

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