The IFRS Interpretations Committee (the Interpretations Committee) received a request to address the accounting for mandatory purchases of non-controlling interests that arise as a result of business combinations. The submission noted that IFRS 3 does not specifically address the accounting for a sequence of transactions that begins with an acquirer gaining control of an entity and is followed shortly thereafter by the acquisition of additional ownership interests as a result of a regulatory requirement that obliges the acquirer to offer to purchase the ownership interests of non-controlling-interest shareholders.
The submission asked the Interpretations Committee to consider two questions:
• Should the initial acquisition of the controlling stake and the subsequent mandatory tender offer (MTO) be treated as separate transactions or as a single acquisition (ie as a linked transaction)?
• Should a liability be recognised for the MTO at the date that the acquirer obtains control of the acquiree?
At its November 2012 meeting, the Interpretations Committee tentatively agreed that the initial acquisition of the controlling stake and the subsequent MTO should be treated as a single acquisition. The Interpretations Committee tentatively decided that the guidance in IFRS 10 Consolidated Financial Statements on how to determine whether the disposal of a subsidiary achieved in stages should be accounted for as one transaction, or as multiple transactions, should also be applied to circumstances in which the acquisition of a business is followed by successive purchases of additional interests in the acquiree. The Interpretations Committee tentatively decided to propose to the IASB that it should amend IFRS 3 through Annual Improvements.
Also at its November 2012 meeting, the Interpretations Committee discussed whether a liability should be recognised for the MTO at the date the acquirer obtains control of the acquiree. The Interpretations Committee noted that IAS 37 Provisions, Contingent Liabilities and Contingent Assets excludes from its scope contracts that are executory in nature and concluded that no liability needed to be recognised for the MTO. The Interpretations Committee tentatively decided to recommend to the IASB that it should not amend IFRS 3.
At its March 2013 meeting, the Interpretations Committee continued to discuss whether a liability should be recognised for the MTO. A small majority of Interpretations Committee members expressed the view that a liability should be recognised for the MTO in a manner that is consistent with IAS 32 Financial Instruments: Presentation at the date that the acquirer obtains control of the acquiree. Other Interpretations Committee members expressed the view that an MTO is not within the scope of IAS 32 or IAS 37 and that a liability should therefore not be recognised. The Interpretations Committee directed the staff to report its views to the IASB and noted that the IASB could address this issue as part of its Post-Implementation Review of IFRS 3.
At this meeting the IASB discussed the Interpretations Committee's views and recommendations. The IASB tentatively agreed with the Interpretations Committee's view that the initial acquisition of the controlling stake and the subsequent MTO should be treated as a single acquisition; however, the IASB tentatively decided not to proceed with an amendment to IFRS 3 through Annual Improvements. Instead, it tentatively decided to discuss this issue – along with the accounting for the MTO at the date that the acquirer obtains control of the acquiree – when it discusses the measurement of put options written on non-controlling interests. The IASB noted that at its March 2013 meeting it tentatively decided to re-consider the measurement requirements in paragraph 23 of IAS 32, including whether all or particular put options and forward contracts written on an entity's own equity should be measured on a net basis at fair value. Because an MTO is economically similar to a put option written on a non-controlling interest, IASB members expressed the view that the accounting for those items should be considered at the same time. Fifteen members of the IASB agreed with these decisions. One member was absent.
The IASB will continue to discuss these issues at a future meeting.