The IFRS Interpretations Committee (Committee) discussed the following matter and tentatively decided not to add a standard-setting project to the work plan. The Committee will reconsider this tentative decision, including the reasons for not adding a standard-setting project, at a future meeting. The Committee invites comments on the tentative agenda decision. All comments will be on the public record and posted on our website unless a respondent requests confidentiality and we grant that request. We do not normally grant such requests unless they are supported by good reason, for example, commercial confidence.
Tentative Agenda Decision
The Committee received a request about how a parent entity that prepares separate financial statements applying IAS 27 accounts for a merger with its subsidiary in its separate financial statements.
Fact pattern
In the fact pattern described in the request:
- a parent entity prepares separate financial statements applying IAS 27 and recognises an investment in a subsidiary applying paragraph 10 of IAS 27;
- the subsidiary contains a business (as defined by IFRS 3 Business Combinations); and
- the parent entity merges with the subsidiary, resulting in the subsidiary’s business becoming part of the parent entity (merger transaction).
The request asked how the parent entity should account for the merger transaction in its separate financial statements. In particular, the request asked whether, in the context of the parent entity’s separate financial statements, the merger transaction:
- constitutes a business combination as defined in IFRS 3 and consequently, whether an entity should apply all the requirements in IFRS 3 that apply to the accounting for a business combination; or
- the merger should not be accounted for as a business combination. Applying this view, the parent entity—in its separate financial statements—recognises the subsidiary’s assets and liabilities at previous carrying amounts.
Findings
Evidence gathered by the Committee [to date] indicates little, if any, diversity in accounting for the merger transaction described in the request. In accounting for the merger transaction described in the request in their separate financial statements, parent entities generally do not apply the requirements in IFRS 3 that apply to the accounting for a business combination.
Conclusion
Based on its findings, the Committee concluded that the matter described in the request does not have widespread effect. Consequently, the Committee [decided] not to add a standard-setting project to the work plan.
The deadline for commenting on the tentative agenda decision is 14 August 2023. The Committee will consider all comments received in writing by that date; agenda papers analysing comments received will include analysis only of comments received by that date.
