A PDF version of this publication is attached here: Business combinations and noncontrolling interests guide - February 2023 (PDF 5.5mb)
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)
  • Carve-out financial statements (CO)
  • Consolidation (CG)
  • Derivatives and hedging (DH)
  • Equity method investments and joint ventures (EM)
  • Fair value measurements (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 February 2023
Chapter 1: Overview of accounting for business combinations
  • Figure BCG 1-1 and BCG 1.2.1 were enhanced to clarify the limited circumstances in which a reporting entity could consider performing a qualitative assessment of the screen test.

Chapter 7: Common control transactions
  • BCG was enhanced to incorporate the FASB’s perspective (per the Basis for Conclusions in ASU 2018-17) that it may be supportable for private companies to use a broader interpretation of common control than expressed by the SEC staff during the deliberations of EITF Issue No. 02-5, Definition of “Common Control” in Relation to FASB Statement No. 141.
  • BCG was updated to include additional guidance related to goodwill impairment testing by the receiving entity subsequent to a common control transaction.
  • BCG was enhanced to clarify how the transferring entity in a common control transaction should allocate goodwill to the disposal group.
  • The majority of the guidance formerly included in BCG was removed. The topic, accounting for a transfer of assets to owners of an entity in the form of a pro rata spinoff or a non-pro rata split-off, is addressed in PPE 6.3.2 and PPE 6.3.3, respectively.

Revisions made in November 2022
Chapter 5: Partial acquisitions and changes in NCI
  • BCG 5.3.2 was updated to include the accounting considerations for a business combination in which the reporting entity has a noncontrolling interest in an entity and holds an option to acquire an incremental equity interest that, upon exercise, gives the reporting entity control over that entity.
  • BCG 5.4 was updated to refer to the guidance on allocation of proceeds in a treasury stock transaction when the purchase of additional shares increases the parent’s proportionate ownership interest in a subsidiary and the purchase price of the shares was greater than fair value.
  • BCG 5.5.3 was updated to address situations when a reporting entity loses control of a business via a spin but retains an equity interest in the spinnee after the spinoff.

Revisions made in August 2022
Chapter 3: Compensation arrangements
  • ASU 2018-07 is effective for all entities. While the guidance in BCG 3 was previously written to reflect adoption of ASU 2018-07, references to the ASU were removed.
  • BCG 3.2 was enhanced to clarify that when assessing consideration transferred in a business combination for replacement share-based payment awards, the proportions attributed to consideration transferred and post-merger compensation cost are based on the portion of the requisite service/vesting period of the original award completed as of the acquisition date, not what portion of the award is legally vested as of that date.

Revisions made in May 2022
Chapter 2: Acquisition method
  • Additional guidance on the determination of the accounting acquirer in a merger transaction between a special purpose acquisition company (SPAC) and a target operating company was added to BCG 2.3.1.
  • Former BCG was removed. The related guidance, which addressed the accounting for defensive intangible assets, is included in BCG 2.5.1 and BCG 4.5.
  • BCG 2.5.20 was added to discuss the acquisition accounting for equity method investments held by the acquiree in a business combination.
  • Example BCG 2-29 in BCG was enhanced to provide additional guidance on the accounting for transaction costs incurred by the seller and reimbursed by the acquirer in a business combination.
  • Example BCG 2-34 in BCG 2.7.5 was updated to address the accounting for a transition service agreement from the acquirer’s perspective.
  • BCG 2.9 was enhanced to provide additional guidance on determining the end of the measurement period.

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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