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The Interpretations Committee drafts a tentative agenda decision

 14 November 2012

The Interpretations Committee received requests for guidance on how to account for transactions in which the former shareholders of a non-listed operating entity become the majority shareholders of the combined entity by exchanging their shares for new shares of a listed non-operating entity. However, the transaction is structured such that the listed non-operating entity acquires the entire share capital of the non-listed operating entity.

The Interpretations Committee observed that the transactions analysed have some features of a reverse acquisition under IFRS 3 because the former shareholders of the legal subsidiary obtain control of the legal parent. Consequently, it is appropriate to apply by analogy, in accordance with paragraphs 10–12 of IAS 8Accounting Policies, Changes in Accounting Estimates and Errors, the guidance in paragraphs B19–B27 of IFRS 3 for reverse acquisitions. Application of the reverse acquisitions guidance by analogy results in the non-listed operating entity being identified as the accounting acquirer, and the listed non-operating entity being identified as the accounting acquiree. The Interpretations Committee noted that in applying the reverse acquisition guidance in paragraph B20 of IFRS 3 by analogy, the accounting acquirer is deemed to have issued shares to obtain control of the acquiree.

The Interpretations Committee also noted that on the basis of the guidance in paragraph B7 of IFRS 3, the listed non operating entity is not a business. Consequently, the transactions analysed are not business combinations and are therefore not within the scope of IFRS 3. Because the transactions analysed are not within the scope of IFRS 3, the Interpretations Committee noted that they are therefore share-based payment transactions that should be accounted for in accordance with IFRS 2. The Interpretations Committee observed that on the basis of the guidance in paragraph 13A of IFRS 2, any difference in the fair value of the shares deemed to have been issued by the accounting acquirer and the fair value of the accounting acquiree’s identifiable net assets represents a service received by the accounting acquirer. This service received is that of a stock exchange listing for its shares. The Interpretations Committee observed that a stock exchange listing does not meet the definition of an intangible asset under IAS 38, Intangible Assets. Consequently, in accordance with the guidance in paragraph 8 of IFRS 2, the cost of the service received is recognised as an expense.

On the basis of the analysis above, the Interpretations Committee determined that, in the light of the existing IFRS requirements, an interpretation or an amendment to IFRSs was not necessary and consequently [decided] not to add this issue to its agenda. As a result of this, the Interpretations Committee does not expect diversity in practice to continue.

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