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PwC is pleased to offer our updated accounting and financial reporting guide, Business combinations and noncontrolling interests.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues.
This guide should be used in combination with a thorough analysis of the relevant facts and circumstances, review of the authoritative accounting literature, and appropriate professional and technical advice.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations, are:
  • Bankruptcies and liquidations (BLG)
  • Consolidation (CG)
  • Derivatives and hedging (DH)
  • Equity method investments and joint ventures (EM)
  • Fair value measurements, global edition (FV)
  • Financial statement presentation (FSP)
  • Financing transactions (FG)
  • Foreign currency (FX)
  • Income taxes (TX)
  • Insurance contracts (IG)
  • Leases (LG)
  • Loans and investments (LI)
  • Not-for-profit entities (NP)
  • Property, plant, equipment and other assets (PPE)
  • Revenue from contracts with customers (RR)
  • Stock-based compensation (SC)
Summary of significant changes
The following is a summary of recent noteworthy revisions to the guide. Additional updates may be made to future versions to keep pace with significant developments.
Revisions made in November 2021
Chapter 2: Acquisition method
  • Example BCG 2-12 in BCG 2.5.15 was enhanced to address circumstances in which an acquiree restructuring is initiated based on the acquirer’s instruction prior to the acquisition date.
  • The contingent consideration discussion in BCG 2.6.4 through BCG 2.6.5 was updated to reflect the guidance in ASU 2020-06, which is further discussed in PwC’s Financing transactions guide.
  • BCG 2.6.5.4 was enhanced to address the accounting for contingent consideration by the seller.
Chapter 3: Compensation arrangements
  • Example BCG 3-1 was added to BCG 3.2 to illustrate the accounting for an arrangement that involves a mix of cash and rollover equity consideration.
  • BCG 3.3 was enhanced to include (1) a discussion around the concept of an in-substance service period associated with contingent payments, (2) additional guidance on evaluating ancillary arrangements that may contain employment requirements of selling shareholders that also become employees of the acquirer, which could impact the acquirer’s accounting for contingent payments, and (3) Example BCG 3-4, which addresses the evaluation of incremental contingent payments to a selling shareholder who is also an employee.
  • BCG 3.4 was updated to clarify the guidance contained within Figure BCG 3-1 on accounting for replacement awards in situations where the acquiree’s awards would not otherwise expire and the acquirer is not obligated to issue replacement awards.
  • BCG 3.4.1.1 was updated to clarify the guidance around the attribution of compensation cost for acquirer replacement awards with graded vesting in the postcombination financial statements.
  • BCG 3.4.3.1 was enhanced to address circumstances in which a change in control clause was added to the acquiree’s awards in connection with the negotiation of the business combination.
  • BCG 3.6.1 was enhanced to include further discussion surrounding the accounting for “last-man-standing” arrangements.
Chapter 5: Partial acquisitions and changes in NCI
  • The discussion of fair value measurement of a noncontrolling interest and a previously held equity interest in BCG 5.3.2 and BCG 5.3.4 was clarified.
  • The discussion in BCG 5.4.2 related to the parent’s accounting for an employee stock option issued by a subsidiary was enhanced.
Chapter 7: Common control transactions
  • The guidance in BCG 7.1.4.2 related to a transfer of assets to owners of an entity in the form of a non-pro rata split-off was removed. The related guidance is included in PPE 6.4.3.
Chapter 9: Goodwill
  • BCG 9.1 and BCG 9.11 were updated for ASU 2021-03 pertaining to the accounting alternative to evaluate goodwill impairment triggering events as of the end of a reporting period for private companies and not-for-profit entities. BCG 9.11.2 was added to address this topic.
  • BCG 9.3.5 was updated to address the treatment of other amounts in accumulated other comprehensive income when assigning assets and liabilities to a reporting unit.
  • BCG 9.9.6 was updated to enhance the discussion related to applying the simultaneous equations method subsequent to adoption of ASU 2017-04.
Chapter 10: Pushdown accounting
  • BCG 10.1.6 was updated to enhance the discussion related to goodwill recognized by the acquiree in its separate financial statements when pushdown accounting is elected.
  • BCG 10.1.10 was added to address how the acquiree may consider measurement period adjustments when pushdown accounting is elected.
Revisions made in June 2021
Chapter 4: Intangible assets acquired in a business combination
  • BCG 4.5 was updated to enhance the discussion around accounting for assets an acquirer does not intend to use (defensive intangible assets). This content was previously included in BCG 8.4.
Chapter 5: Partial acquisitions and changes in NCI
  • BCG 5.3 was updated to address the accounting for equity interests prior to obtaining control.
  • BCG 5.3.2 was enhanced to discuss the accounting for a previously held equity interest that was accounted for using the measurement alternative under ASC 321 when the investor subsequently obtains control.
  • BCG 5.3.4 was enhanced to discuss the fair value measurement considerations for a noncontrolling interest and previously held equity interest when obtaining control through a step acquisition.
  • BCG 5.4 was updated to address the scope of the guidance for changes in a parent’s ownership interest in a subsidiary (ASC 810-10-45-21A).
  • BCG 5.4.5 was enhanced to discuss the accounting for a disposal of a noncontrolling interest in a foreign entity that does not result in a loss of control.
  • BCG 5.5 was updated to address the scope of the guidance for changes in a parent’s ownership interest in a subsidiary that result in loss of control (ASC 810-10-40-3A).
  • The order of certain sections within BCG 5 was rearranged. Former BCG 5.5.5 was moved to BCG 5.3.7, and former BCG 5.6 was moved to BCG 5.4.9.
Chapter 7: Common control transactions
  • The order and numbering of BCG 7 was rearranged.
  • Former BCG 7.2 and former Figure BCG 7-1 were moved to BCG 7.1.2.
  • BCG 7.1.1.4 and Figure BCG 7-1 were added to address the accounting for Up-C structures.
  • Specialized accounting considerations related to real estate that were included in former BCG 7.2.2.1, including Example BCG 7-2, were removed. The related guidance prior to adoption of ASC 606 and ASC 610-20 was superseded.
  • Former Example BCG 7-3 in former BCG 7.2.2.1 was moved to BCG 7.1.1.1 as Example BCG 7-1 to provide guidance related to a transaction when common management may exist.
  • Former Example BCG 7-4 in former BCG 7.2.2.1 was moved to BCG 7.1.3.1 as Example BCG 7-8 to provide guidance related to a transaction when property is sold to a subsidiary and then sold to a third party.
  • BCG 7.1.3.3 was enhanced to provide additional guidance related to determining the receiving entity.
  • BCG 7.1.4.1 was enhanced to provide additional guidance on the transferring entity’s accounting for goodwill allocated to the transferred entity.
Chapter 8: Accounting for indefinite-lived intangible assets
  • BCG 8.2.1 was enhanced to discuss the impairment considerations when reclassifying an intangible asset to/from indefinite lived.
  • BCG 8.2.4 was updated to address the accounting for IPR&D intangible assets that are acquired and subsequently abandoned.
  • BCG 8.3.2.1 was enhanced to discuss certain considerations when evaluating the unit of accounting for the impairment test of indefinite-lived intangible assets.
  • BCG 8.3.2.2 was added to provide guidance on accounting for the removal of a portion of an indefinite-lived intangible asset from a single unit of account.
  • Former BCG 8.4 was removed. The related guidance, which addressed the accounting for assets an acquirer does not intend to use (defensive intangible assets), was moved to BCG 4.5.
Revisions made in March 2021
Chapter 1: Overview of accounting for business combinations
  • Figure BCG 1-1 in BCG 1.2 was enhanced to update the framework for evaluating whether an acquired set is a business or a group of assets.
  • BCG 1.2.2 was enhanced to provide additional information regarding an organized workforce.
Chapter 2: Acquisition method
  • BCG 2.6.3.5 was added to provide guidance on the accounting for deferred consideration (i.e., future payments that are based solely on the passage of time), including the addition of Example BCG 2-16.
  • The existing guidance in BCG 2.11 and Figure BCG 2-3 were enhanced to provide additional information regarding the acquisition of a variable interest entity that is not a business.
  • BCG 2.12 was updated to discuss the accounting for conforming accounting policies in circumstances in which the acquirer may not have an existing accounting policy.
Chapter 6: Noncontrolling interests
Copyrights
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.
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