Business Combinations under Common Control

About the project

HKFRS/IFRS 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.

The International Accounting Standards Board (IASB) is discussing how to improve the quality of information, comparability and transparency of BCUCC to help investors make better investment decisions.  On 30 November 2020, the IASB published its preliminary views on the accounting for BCUCC in a Discussion Paper to seek public comments. The HKICPA responded to that Discussion Paper in August 2021 (Please refer to our webpage for details).

HKICPA undertook various activities to drive global discussions on BCUCC and provide input to the IASB:

• As the leader of the BCUCC working group of the Asian-Oceanian Standard-Setters Group, HKICPA has facilitated several discussions among accounting standard-setters within the region.
• HKICPA works with other standard-setters, like the Italian Accounting Standard-Setter, to obtain investors' feedback and present the findings at international conferences.
• Back at home, HKICPA conducted a study to understand the types of BCUCC and the published accounting information about BCUCC; raised awareness on the accounting situation with Hong Kong preparers and investors; and led discussions with local stakeholders to understand their information needs and accounting challenges related to BCUCC. 
• In 2005, HKICPA issued Accounting Guideline 5 Merger Accounting for Common Control Combinations (AG 5) which sets out the principles to account for BCUCC using the predecessor carrying amount of the acquired business. This method is known as the 'predecessor method'. Although not mandatory, entities applying HKFRS generally follow AG 5 unless another approach (e.g. acquisition method under HKFRS/IFRS 3 Business Combinations) is adopted. In 2016, HKICPA conducted a post-implementation review of AG 5 to seek stakeholders' feedback on the benefits and challenges of applying AG 5. The feedback statement on the post-implementation review was published.

Published documents/webcasts

• E-learning: Common application issues of AG 5 Merger Accounting for Common Control Combinations
• HKICPA Submission on IASB Discussion Paper
• APlus article: Speak now or forever hold your peace (April 2021)

• HKICPA webcast on IASB Discussion Paper

• Common control combinations – How they were reported in Hong Kong
• Accounting Guideline 5 Merger Accounting for Common Control Combinations

• Accounting Guideline 5 (Revised) Merger Accounting for Common Control Combinations

• Feedback statement on the post-implementation review of AG 5
• Executive summary of joint investor survey of HKICPA and Italian Accounting Standard-Setter

International presentations

Last updated: 18 August 2021