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Common Control transactions will continue to be an area for which no authoritative guidance exists under IFRS.
In November 2023, the IASB discontinued its common control project. This project had been running for many years, and in particular had issued a discussion paper in 2020, which at the time looked like it might be a precursor to the issue of an IFRS standard in this area.
Recently, the IASB published its project summary which set out the reasons why it has decided not to pursue the project any further. The reasons included:
- The cost of developing and applying any new regulations would outweigh the benefits
- A belief that investors and other users have already become accustomed to, and adapted to, the existing diversity in this area
- Jurisdictional differences would make achieving a common global standard difficult
“It is disappointing that the IASB was unable to progress its work in this area to a successful conclusion” said Ralph Martin, RSM Australia’s National Technical Director. “Common control transactions remain something of a ‘black hole’ in IFRS, where they are explicitly scoped out of the business combinations standard, but without any indication as to where else you should refer.”
In the absence of any authoritative guidance, RSM’s article “Common Issues with Common Control” sets out the commonly applied methods of accounting for business combinations under common control. Most common control transactions are accounted for under a “book value” method, although there remains diversity in the details of when and how this approach is applied.
“It’s a challenging topic, and it is unsurprising that the IASB encountered a wide diversity of views in response to its discussion paper” stated Ralph Martin. “However, we believe that there would still have been benefit to users in standard-setting activity in this area. Even if the adoption of a book value approach was an optional accounting policy choice, it would have been valuable to have clarity on how it should be implemented, as there are currently multiple variations being used. US GAAP and UK GAAP both contain guidance on the use of a book-value based method, so the challenges of standard-setting in this area are not insurmountable.”
FOR MORE INFORMATION
For any queries on common control please contact Ralph Martin or Nadia Hattingh.
