Non-controlling interests and goodwill
The Board continued its deliberations on the measurement of non-controlling interests and goodwill in a business combination. The Board also discussed whether use of the acquisition method should be required for combinations between mutual entities and combinations achieved by contract alone.
Until now the Board’s discussions have focused on what goodwill is and how it should be measured, with NCI being measured as its proportional share in the identifiable assets and liabilities plus its share of goodwill. The staff changed the focus of the discussion onto NCI in an attempt to reconcile the thinking between the views expressed in the comment letters and by the Board. The exposure draft did not identify a measurement attribute for NCI. Measuring NCI at fair value would be consistent with the way most components, including other components of equity, are accounted for in a business combination. The Board tentatively decided that the standard should state that the principle for the initial measurement of non-controlling interests in business combination is acquisition date fair value. In reaching this decision, the Board gave weight to its goal of ensuring that the underlying principles are clearly stated in the standard.
Having established the principle, the Board then discussed whether to make an exception to that principle. An exception to the principle might be justified because of practical difficulties associated with measuring the fair value of NCI. Although the discussion has shifted away from goodwill to NCI, it is likely that many of the concerns raised in the comment letters, and by Board members, in relation to goodwill are also relevant to measuring NCI.
The Board tentatively decided that the standard should include an exception to fair value measurement for NCI. The Board did not decide what that exception would be, but asked the staff to bring back to the Board an analysis of the consequences of allowing an exception. The analysis would include alternative measures and an assessment of the effect of an exception on other aspects of the proposals. The Board also asked the staff to consider whether it might be appropriate to allow an entity to measure NCI at fair value.
Combinations between mutual entities
The Board tentatively affirmed the proposal in the exposure draft to include mutual entities in the scope of the revised business combinations standard. Thus, combinations between mutual entities would be accounted for by applying the acquisition method. The Board also tentatively affirmed that the proposed definition of a mutual entity includes co-operatives. A mutual entity is defined as an entity other than an investor-owned entity that provides dividends, lower costs, or other economic benefits directly and proportionately to its owners, members or participants.
Business combinations achieved by contract alone or in the absence of a transaction involving the acquirer
The Board tentatively affirmed the proposal in the exposure draft to include in its scope business combinations that are effected by contract alone or in the absence of a transaction involving the acquirer. The Board concluded that all transactions or events in which an entity obtains control of a business are economically similar and should be accounted for by applying the acquisition method.