ASCG comments on IASB DP/2020/2 Business Combinations under Common Control

The ASCG today submitted its comment letters to the IASB on DP/2020/2 Business Combinations under Common Control and to EFRAG on its Draft Comment Letter on this DP.

In our comment letters, we appreciate the IASB’s efforts to explore possible reporting requirements for business combinations under common control that would reduce the existing diversity in practice, improve transparency in reporting these combinations, and provide users of financial statements with better information.

Regarding the project’s scope, we think that the scope should be as broad as possible to initially discuss all relevant topics and so that the underlying concept(s) can be developed consistently. Subsequently, specific topics could be addressed in different ways and projects or, if necessary, deliberately and justifiably excluded from further work.

We also support the IASB´s proposal, that only the fact pattern (e.g., with regard to the participation of non-controlling shareholders (NCS)) at the time of the BCUCC shall be considered, even if the transfer is preceded by an acquisition from an external party or followed by a sale of one or more of the combining companies to an external party; or is conditional on a sale of the combining companies to an external party, such as in an initial public offering. We point out, though, that at the time of the BCUCC, there may be different stakeholders involved and thus also different information needs than at the time of an IPO.

The IASB´s preliminary views that, in principle, the acquisition method should be applied if the business combination under common control affects non-controlling shareholders of the receiving company and that a book-value method should be applied to other business combinations under common control, are supported.

With regard to the question of which book values should be used when applying the book value method, we think that supporting arguments can be found for each of the three theoretical approaches, i.e., the use of the book values of the transferred company, of the transferring company or of the (ultimate) controlling company. However, we think that the appropriateness of the respective book values depends in each case on the specifics of the BCUCC transaction to be accounted for. Given the observable complexity of BCUCC transactions and the diversity of practical and conceptional arguments for and against the respective alternative approaches, we think that granting an option for the receiving company to choose which of these book value approaches it wants to apply on a case-by-case basis, depending on the individual facts and circumstances of the transaction, is worth considering.

Furthermore, we think that the DP touches on an area of conflict in that BCUCCs are generally initiated by the controlling party and structured and carried out in the interest of the controlling party, while the DP, however, follows only the perspective of the receiving company and only addresses its accounting. Therefore, we do not agree with the IASB’s view that ‘the controlling party is not a party to the combination of the receiving company with the transferred company’.