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12.6 Consolidation—changes in interest
Publication date: 30 Jun 2023
us IFRS & US GAAP guide
Differences exist between US GAAP and IFRS Accounting Standards in the accounting for a change in ownership interest. Such differences depend on whether control is lost or retained.
12.6.1 Consolidation—change in interest without loss of control
Under US GAAP, a change in ownership interest that does not result in a loss of control is generally accounted for as an equity transaction; however, there are exceptions which may result in different accounting. Under IFRS Accounting Standards, a change in ownership interest without a loss of control is accounted for as an equity transaction (i.e., no gain or loss is recognized in earnings).
US GAAP |
IFRS Accounting Standards |
Changes in a parent’s ownership interest that do not result in a loss of control of the subsidiary are accounted for as equity transactions (i.e., no gain or loss is recognized in earnings) when:
For additional information, see BCG 5.4.
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Changes in a parent’s ownership interest that do not result in a loss of control of the subsidiary are accounted for as equity transactions (i.e., no gain or loss is recognized in earnings). There are no exceptions for certain industries (e.g., conveyance of oil and gas mineral rights), types of transactions (e.g., contracts with customers), or when the subsidiary is not a business.
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12.6.2 Consolidation—change in interest with loss of control
Under both US GAAP and IFRS Accounting Standards, the loss of control of a subsidiary that is a business results in the recognition of a gain or loss on the sale of the interest sold and on the revaluation of any retained noncontrolling investment. However, US GAAP provides certain exceptions which may result in different accounting; there are no such exceptions under IFRS Accounting Standards.
US GAAP |
IFRS Accounting Standards |
The loss of control of a subsidiary that is a business results in the recognition of a gain or loss on the sale of the interest sold and on the revaluation of any retained noncontrolling investment, when:
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The loss of control of a subsidiary results in recognition of a gain or loss on (1) sale of the interest and (2) revaluation of any retained noncontrolling investment. There are no exceptions for certain industries (e.g., conveyance of oil and gas mineral rights), types of transactions (e.g., contracts with customers), or when the subsidiary is not a business.
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12.6.3 Consolidation—loss of control – spinoffs and split-offs
A nonreciprocal transfer of assets to owners of a reporting entity may be in the form of a pro rata spinoff or a non-pro rata split-off. A pro rata spinoff of assets that constitute a business is accounted for by the spinnor under US GAAP based on the recorded amount of the assets transferred; under IFRS Accounting Standards, this transaction is accounted for by the spinnor at fair value with any gain or loss recognized in earnings. While a non-pro rata split-off transaction is accounted for by the spinnor at fair value under US GAAP, there is no specific guidance on split-offs under IFRS Accounting Standards.
US GAAP |
IFRS Accounting Standards |
A spinoff is the transfer of assets that constitute a business into a new legal entity, upon which the shares of the spinnee are subsequently distributed to its shareholders, and the shareholders do not surrender any stock of the spinnor. In accordance with ASC 845-10-30-10, a transfer of long-lived assets that constitute a business to owners in a spinoff should be accounted for based on the recorded amount of the assets transferred (after reduction, if appropriate, for any impairment). In contrast, if the long-lived assets transferred do not constitute a business, the transaction is not a spinoff even though the distribution is pro rata. Rather, it would be considered a dividend in kind, which is generally accounted for based on the fair value of the assets transferred.
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A nonreciprocal, non-cash distribution to owners is accounted for under IFRIC 17 at fair value with any gain or loss recognized in earnings. IFRIC 17 applies to distributions of non-cash assets (e.g., property, plant, and equipment) and businesses.
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A non-pro rata split-off transaction is a non-pro rata distribution that may or may not involve all shareholders. A split-off transaction usually involves a substantive parent entity offering its noncontrolling shareholders the ability to exchange any or all of their equity shares of the parent entity, subject to a cap if oversubscribed, for shares of a subsidiary at a specified exchange rate. A non-pro rata split-off is akin to a sale and is accounted for at fair value.
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There is no specific guidance for non-pro rata split-offs under IFRS Accounting Standards.
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