Accounting Standards for Private Enterprises

Related Party Combinations

Summary

The Accounting Standards Board (AcSB) consulted with stakeholders about its priorities for domestic standards as per its 2017-2018 Annual Plan. During its consultations, the AcSB conducted a stakeholder survey.

The results of the survey identified Section 3840, Related Party Transactions in Part II of the Handbook as a high priority. A number of stakeholders identified accounting for related party combinations as an area of concern.

The AcSB is, therefore, engaging in a research project to better understand the different types of related party combinations undertaken by private enterprises and not-for-profit organizations.

Through consultations, the AcSB heard that the guidance in paragraph 44 of Section 3840 is unclear and often causes challenges in practice.

Stakeholders also questioned whether financial instruments acquired or assumed in a transaction when a business is transferred between two enterprises under common control should be measured using the principles in paragraph 3840.44 or Section 3856.

The AcSB proposes to amend Section 3840 to address accounting for:

a) a combination between enterprises or businesses under common control; and
b) financial assets acquired or financial liabilities assumed in a combination between enterprises or businesses under common control.

Staff Contact(s)

Mark Squire, CPA, CA Principal, Accounting Standards Board

+1 647 264 3810

[email protected]

Project Status

Information gathering

Completed prior to September 2022
Approving project

The AcSB approved the project in September 2022

The AcSB developed proposals to address high priority issues identified when accounting for related party combinations under common control
Consulting stakeholders

The AcSB issued Exposure Draft, Improvements to Accounting for Common Control Combinations in November 2022

Exposure Draft
Deliberating feedback

The AcSB is deliberating the feedback received on its Exposure Draft, Improvements to Accounting for Common Control Combinations

View Comments
Final pronouncement

News

November 1, 2022 Document for Comment

AcSB Exposure Draft – Improvements to Accounting for Common Control Combinations

The AcSB wants your feedback on its proposed amendments to Related Party Transactions, Section 3840.

The proposed amendments address accounting for a combination between enterprises or businesses under common control and financial assets acquired or financial liabilities assumed in a combination between enterprises under common control. Submit your comments by January 31, 2023.

Meeting & event summaries

May 26, 2022 Private Enterprise Advisory Committee Notes – May 10, 2022

The Private Enterprise Advisory Committee received an update on the Related Party Combinations project. The Committee discussed which issues in accounting for combinations between businesses under common control are a high priority. The Committee also discussed whether the AcSB should consider a phased approach to expedite standard setting, addressing some issues now and other issues at a later time.

Committee members supported the proposal to amend Related Party Transactions, paragraph 3840.44(a), to remove reference to the exchange amount to clarify that business combinations under common control meeting the criteria in paragraph 3840.29 would only be subject to requirements in Section 1582, Business Combinations. Committee members agreed that this proposal is unlikely to change current practice as the exchange amount in business combinations under common control approximates the fair value.

Some Committee members suggested that additional guidance regarding business combinations between related companies that are not under common control would be useful to preparers.

Several Committee members indicated that addressing the requirement in paragraph 3840.44(b) to retroactively restate comparatives is a high priority item. Providing optionality over the retroactive restatement would allow entities to meet user needs and provide relief from added reporting.

The AcSB will consider the Committee’s feedback at the July 2022 Board meeting.

March 8, 2022 AcSB Decision Summary – February 23, 2022

The AcSB received an update on the Related Party Combinations project and discussed a preliminary staff proposal to address stakeholder concerns with the current accounting for related party business combinations under Section 3840, Related Party Transactions. The Board also discussed the feedback received from the Private Enterprise Advisory Committee on the proposal.

The AcSB directed staff to conduct further research to better understand the interactions of the staff proposals with the existing requirements. The Board will discuss the research results at its March 2022 meeting.

February 22, 2022 Private Enterprise Advisory Committee Notes – February 9, 2022

The Private Enterprise Advisory Committee received an update on the Related Party Combinations project and discussed a proposal to widen the scope of Related Party Transactions, paragraph 3840.44, to reference all related party business combinations.

Some Committee members supported the proposal and indicated that it would simplify the current accounting for related party combinations.

Other Committee members noted that the proposal would result in more combination transactions being captured within paragraph 3840.44(b), and that the current requirement to restate the comparatives in the financial statements of the combined enterprise may prove more burdensome. A few Committee members indicated that, in some instances, it is more cost efficient to obtain independent fair value estimates for the acquired assets and liabilities.

The Committee discussed whether relief from the requirement in paragraph 3840.44(b) to restate comparatives would address the challenges raised. The Committee also discussed whether an accounting policy choice should be explored as an option to accommodate circumstances where the carrying values of the acquired assets and liabilities are impracticable to obtain. Some members expressed concern that an accounting policy choice may lead to additional diversity in practice.

The AcSB will consider the Committee’s feedback at the February 2022 Board meeting.

Disclaimer

This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.