Business Combinations under Common Control
About the project
HKFRS/IFRS Accounting Standards do not specify how to account for combinations of companies or businesses controlled by the same party (BCUCC). Consequently, companies account for such transactions in different ways, making it difficult for investors and regulators to compare the financial effects of those transactions.
This project addresses the accounting for BCUCC in Hong Kong, taking into account both local practice and stakeholder feedback, as well as relevant international developments.
Hong Kong developments
In 2005, the HKICPA issued Accounting Guideline 5 Merger Accounting for Common Control Combinations (AG 5) which sets out the principles to account for BCUCC using the existing book values of the acquired business. Although not mandatory, entities applying HKFRS Accounting Standards generally follow AG 5 unless another approach (e.g. acquisition method under HKFRS/IFRS 3 Business Combinations) is adopted.
In 2016, the HKICPA conducted a post-implementation review of AG 5 (PIR) to seek stakeholders' feedback on the benefits and challenges of applying AG 5. The feedback statement on the PIR was published in 2018.
While limited amendments to AG 5 were made in 2020, four issues remained outstanding (Outstanding Issues). At that time, the HKICPA decided to defer further work on these issues pending the outcome of the International Accounting Standards Board (IASB)’s then project on BCUCC.
IASB’s BCUCC project and international engagements
In 2012, the IASB added a project to its research agenda to explore whether international accounting requirements should be developed for BCUCC. Since then, the IASB has explored ways to improve the quality of information, comparability and transparency of BCUCC to help investors make better investment decisions.
Between 2015 and 2020, the HKICPA played a key role in advancing global discussions on the BCUCC project. In particular, as the leader of the BCUCC working group of the Asian-Oceanian Standard-Setters Group, the HKICPA facilitated discussions among regional accounting standard-setters, undertook related research and outreach, and submitted a comment letter on the IASB’s Discussion Paper on BCUCC (see further details under Archived materials).
The IASB began deliberations on the BCUCC project in late 2021. After extensive discussions and considering the feedback received, in November 2023, the IASB decided not to develop requirements for reporting BCUCC and discontinued its work on the project. A project summary was published in April 2024, summarising the research findings and decisions of the IASB.
Recent developments
Following the discontinuation of the IASB’s BCUCC project, the HKICPA resumed its efforts towards addressing the Outstanding Issues identified in the PIR. Between 2024 and 2025, the HKICPA undertook further research and conducted outreach to assess whether, and how, these issues should be addressed in the Hong Kong context.
On 26 February 2026, the HKICPA published an Exposure Draft on Proposed Amendments to AG 5 (ED), with a comment deadline of 27 May 2026. Based on research findings and outreach feedback, the ED proposes the following key amendments:
a) Scope of AG 5 – clarifying the scope by adding references to the definitions of “business” and “business combination” in HKFRS 3 Business Combinations;
b) Controlling party and carrying values – clarifying that judgment is required to determine which controlling parties’ perspective should be used to recognise the net assets of the acquired business or entity, and by requiring disclosure of the basis for that determination;
c) Shares issued as consideration – requiring disclosure of the measurement approach for shares issued as consideration, rather than prescribing a single method for all types of common control combinations;
d) Restating comparatives – introducing a practical expedient that allows entities not to restate comparatives, unless such restatement is required by applicable laws or regulations; and
Respondents were generally supportive of the proposals in the ED and did not raise any significant conceptual or operational concerns. After considering the feedback received, the FRSC approved the ED at its September 2026 meeting, with minor editorial refinements in response to stakeholder comments.
The Institute issued the final amendments and the accompanying Basis for Conclusions in September 2026. The amendments shall be applied prospectively to common control combinations that occur on or after the beginning of the first annual reporting period beginning on or after 1 January 2028, with earlier application permitted.
Supporting educational materials and training
- HKICPA live webinar (Nov 2026) - Understanding the Amendments to AG 5 and Their Practical Implications
- Frequently Asked Questions on the Amendments to AG 5
- A Plus article - Merger accounting under AG 5: Proposed changes and why they matter (April 2026)
- Accounting Guideline 5 (Revised) Merger Accounting for Common Control Combinations (currently effective)
- Accounting Guideline 5 (Revised) Merger Accounting for Common Control Combinations (effective from 1 January 2028)
Archived materials
Please click here to read the archived materials.
