Business combinations under common control

Learning objectives

• Identify a combination under common control (the same party controls before and after, control is not transitory) and conclude that it is outside the scope of IFRS 3.L1, L2
• Justify, from the facts of a case, whether or not common control is transitory.L1, L2

Normative references

• IFRS 3 §2Scope: IFRS 3 applies to any transaction or other event that meets the definition of a business combination. It does not apply to (a) the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself, (b) the acquisition of an asset or a group of assets that does not constitute a business (cost allocated to the individual identifiable items on the basis of their relative fair values, with no goodwill) and (c) combinations of entities or businesses under common control (guidance in B1 to B4). The wording of (a) comes from the Annual Improvements 2011-2013 Cycle (prospective application for annual periods beginning on or after 1 July 2014, para. 64J). Para. 2A also excludes the acquisition by an investment entity of a subsidiary that it is required to measure at fair value through profit or loss.
• IFRS 3 §B1Combination under common control: all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory; a group of individuals bound by a contractual arrangement may constitute that party (B2 and B3); the extent of non-controlling interests is not decisive (B4). "Transitory" is not defined: judgement is required. According to an IASB staff paper, such a transaction outside the scope is accounted for under an accounting policy selected in accordance with IAS 8 (cross-reference).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Two subsidiaries controlled by the same parent both before and after their combination form a combination under common control, outside the scope of IFRS 3, provided that this common control is not transitory.L1
• Two companies, Nacre SA and Opale SA, are owned in equal parts by Mr Arnaud and Ms Bellec, who exercise their control together under a contractual arrangement. Nacre and Opale merge. Case assumption: before and after the transaction this group of individuals controls the whole, and that control is not transitory. What follows under IFRS 3?L2