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13.9 Combinations involving entities under common control
Publication date: 28 Feb 2022
us IFRS & US GAAP guide
Under US GAAP, there are specific rules for common control transactions. Under IFRS, there is no specific guidance as combinations involving entities or businesses under common control are excluded from the scope of IFRS 3.
Note about ongoing standard setting
The IASB has an active project on the topic of business combinations under common control. Several issues were raised with the IFRS IC, and subsequently the IASB decided to address the topic as part of a wider project starting with the issuance of a discussion paper in November 2020, Business Combinations under Common Control. The comment period ended September 1, 2021, and the IASB started to discuss feedback received at its December 2021 meeting. Financial statement preparers and other users of this publication are therefore encouraged to monitor the status of the project. Once finalized, financial statement preparers and users should evaluate the effective date of the new guidance and the implications on presentation and disclosure.
US GAAP | IFRS |
Combinations of entities under common control are generally recorded at predecessor cost, reflecting the ultimate parent’s carrying amount of the assets and liabilities transferred.
When an entity receives a business from an entity under common control, the transaction is reflected retrospectively. | IFRS does not specifically address the accounting for a business combination under common control. In practice, entities develop and consistently apply an accounting policy. Entities generally apply the predecessor value method; however, entities can make an accounting policy election to apply acquisition accounting in certain circumstances. The accounting policy can be changed only when criteria for a change in an accounting policy are met in the applicable guidance in IAS 8 (i.e., it provides more reliable and more relevant information). Entities will also need to elect an accounting policy to record businesses obtained through common control transactions on either a retrospective or prospective basis.
In addition, the controlling party might not prepare consolidated financial statements. In such situations, the book values used are generally those from the highest set of consolidated financial statements available. If no consolidated financial statements are produced, the values used would be those from the financial statements of the acquired entity.
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