SOCPA Expresses Its View on IASP Discussion Paper: Business Combinations Under Common Control
The International Accounting Standards Board (IASB) published a discussion paper containing its preliminary views on how to deal with business combinations transactions that are under common Control, in which an affiliate entity takes control of another affiliate entity from the same group.
The board's view can be summed into two different accounting treatments depending on the nature of the affiliate entity controlling the other affiliate entity of the same group. The board sees that the IFRS 3 Business Combinations requirements should be applied in general if the combination can affect minority rights in the affiliate entity. The board also noted that such situation is frequent if the acquired entity is listed on the financial market. As for the other business combinations transaction, the board reached the opinion that book-value method should be applied.
SOCPA, represented by the Accounting Standards Committee, shared its comments and views on the IASB paper. SOCPA's main view is that since business combination transactions are subject to a decision by the controlling party of the entities involved in such transaction, the transaction can only be considered as part of a restructuring effort by controlling company, and therefor SOCPA concluded that book-value method is the appropriate approach to such situations.
SOCPA expanded on its comments with supporting arguments, most important among them is the absence of a main requirement for business combination under IFRS 3, which is the need to identify the acquirer and acquiree.