Abstract
Although BCUCCs are widespread, a clear treatment is missing under IFRS. Most contributions have taken partial views. This article innovatively provides a systematic theoretical apparatus of the role accounting plays for all the affected members of a group, with a focus on gain or loss opportunities below the consolidated statements. The method used is international technical accounting analysis under IFRS and U.S. GAAP. It shows how a BCUCC may be driven to achieve gain/loss in separate financial statements and how cross-company consistency in policies and substance may reveal gain/loss arbitrage; the interaction of principles for disposals, demergers, and business combinations; and the position of sub-holdings, which in real practice is more relevant than the ultimate parent company. This paper is timely, as the IASB has recently published a Discussion Paper. The IASB project fails to give answers to these points as it only looks at the receiving entity and consolidated statements.
Highlights
Notwithstanding the frequency and significance of business combinations under common control, a clear set of accounting principles is missing under IFRS
This has often been justified based on International Accounting Standards Board (IASB) (2018), IAS 8 paras. 10-11 principles for developing an accounting policy in the absence of a applicable IFRS, by first looking at IFRSs dealing with similar issues (IASB 2020, IFRS 3 in this case), or other GAAPs, such as U.S GAAP
Under IASB (2018), IAS 8 para.14, an entity can voluntarily change an accounting policy that is allowed by IFRS only if it results in the financial statements providing reliable and more relevant information about the effects of transactions, other events and conditions on the entity’s financial position, financial performance, and cash flows
Summary
Notwithstanding the frequency and significance of business combinations under common control (i.e., between members of the same group, hereafter BCUCCs), a clear set of accounting principles is missing under IFRS. B1 defines a business combination under common control as where all the combining entities or businesses are controlled by the same party or parties both before and after the business combination, and control is not transitory. Common control exists when there is a contractual arrangement that gives a group of individuals with non-transitory ultimate power to govern the financial and operating policies to obtain benefits from its activities FASB (2005), EITF 02-5, superseded, suggested that common control of separate entities exists when there is more than 50% voting ownership interest by the same enterprise or individual or their immediate family members (including married couple and their children) with no evidence of voting other than in concert, or by a group of shareholders with contemporaneous written evidence of an agreement to vote a majority of shares in concert
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