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)
- Crypto assets (CA)
- 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 September 2023
- BCG 126.96.36.199 was updated to add Example BCG 2-29, which illustrates the accounting for transaction costs incurred by the acquiree on behalf of the seller as well as costs incurred directly by the seller in the acquiree’s pre-acquisition financial statements.
Chapter 5: Partial acquisitions and changes in NCI
- Example BCG 5-11 in BCG 5.4.4 was updated to clarify existing guidance on accounting for a reallocation of accumulated other comprehensive income upon a change in ownership that does not result in a change of control.
- Example BCG 7-9 in BCG 188.8.131.52 was enhanced to provide additional analysis on the accounting by the receiving entity in a common control transaction, including consideration of the application of pushdown accounting.
- BCG 10.1.11 was removed. The related guidance, which addressed presentation and disclosure considerations for an acquiree that elects pushdown accounting, is included in FSP 17.6.
Revisions made in June 2023
- ASC 842 is effective for all entities. BCG 2.5 and BCG 2.5.18 were updated to remove the guidance from ASC 840.
- ASU 2019-12 is effective for all entities. BCG 2.5.9 was updated to remove references to the ASU. See TX 10 for additional information on tax issues related to a business combination.
Chapter 4: Intangible assets acquired in a business combination
- ASC 842 is effective for all entities. BCG 184.108.40.206 was updated to remove the ASC 840 guidance.
- BCG 220.127.116.11 was updated to address the accounting for the value of an in-place lease when the acquiree is a lessor in a sales-type or direct financing lease.
- BCG 4.3.6 was added to address foreign currency translation procedures related to intangible assets.
- ASU 2019-06 is effective for all entities. BCG 4.7 was updated to remove references to the ASU. Additionally, the guidance formerly included in BCG 4.7.3 related to disclosures under the intangible assets alternative for private companies and BCG 4.7.4 related to adoption of the intangible assets alternative for private companies has been incorporated into BCG 4.7. Those subsections have been removed.
Chapter 8: Accounting for indefinite-lived intangible assets
- BCG 18.104.22.168 was enhanced to clarify the existing guidance from the AICPA IPR&D guide related to enabling technology.
- BCG 8.3 was updated to clarify the existing guidance on impairment of indefinite-lived intangible assets. Former Figure BCG 8-1 was removed.
- BCG 8.4 was updated to add a note about ongoing standard setting for the FASB’s active project on the accounting for and disclosure of crypto assets. For information on the accounting and reporting considerations related to digital assets, see PwC’s Crypto assets guide.
- BCG 8.5 was removed. The related guidance, which addressed the presentation and disclosure of indefinite-lived intangible assets, is included in FSP 8.8. Private companies should also refer to the guidance in FSP 8.10.1.
Chapter 9: Accounting for goodwill postacquisition
- ASU 2021-03 is effective for all entities. BCG 9.1 and BCG 9.11.2 were updated to remove references to the ASU.
- BCG 9.4.5 and BCG 22.214.171.124 were enhanced to clarify the existing guidance on foreign currency translation procedures related to goodwill.
- Question BCG 9-33 in BCG 126.96.36.199 was updated to clarify the existing guidance on how a company with a negative carrying amount at the entity (or reporting unit) level should measure a goodwill impairment loss.
- BCG 188.8.131.52 was enhanced to clarify the existing guidance on determining the amount of goodwill to attribute to a disposed business.
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.
- BCG 184.108.40.206 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 220.127.116.11 was updated to include additional guidance related to goodwill impairment testing by the receiving entity subsequent to a common control transaction.
- BCG 18.104.22.168 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 22.214.171.124 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.
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