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Banking Holding banking to account: the real diversity and inclusion pictureWe explore how the banking sector can continue to attract, retain and nurture women to build a more diverse and inclusive future.
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IFRS IFRS 9 - Audit of Expected Credit LossesGPPC releases The Auditor’s response to the risks of material misstatement posed by estimates of expected credit losses under IFRS 9
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growthiQ Steering your company to long-term successHistory has something important to tell us about the difficulties of steering a business to long-term success – through seismic shifts in technology, consumer demands and product development. With that in mind it’s unsurprising that over half the world’s largest companies in the early 1900s had shut their doors by the late 1990s. Some, however, have endured.
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International Financial Reporting Standards Implementation of IFRS 17 ‘Insurance Contracts’The auditor’s response to the risks of material misstatement arising from estimates made in applying IFRS 17 ‘Insurance Contracts’
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IFRS Get ready for IFRS 17After twenty years of development the IASB has published IFRS 17 ‘Insurance Contracts’, find out more.
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Global business pulse - industry analysis Mid-market recovery spreads to more industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Global business pulse - industry analysis A very uneven recovery across industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Access to finance Raise finance to invest in changePrepare your business to raise finance to invest in change.
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Private equity firms Private equity in the mid-market: reshaping strategies for 2021When the global COVID-19 pandemic stormed across the globe in early 2020, the private equity sector was hit hard but deals are coming back to the market.
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Mid-market businesses Getting ready for private equity investmentOur specialists explore how private equity firms are now working with their portfolios and how the mid-market can benefit from investment.
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Mid-market businesses Myth-busting private equityNervous about partnering with Private Equity? We explore some of the common myths we come across when speaking to mid-market businesses about PE investment.
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Global business pulse - industry analysis Mid-market recovery spreads to more industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Global business pulse - industry analysis A very uneven recovery across industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Global business pulse - Sector analysis Clear patterns of damage from COVID-19 across the industriesThe index results for 12 key sectors of the mid-market reveal just how much or little the various parts of the economy were impacted by COVID-19.
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Industries European Real Estate PodcastJessica Patel, Tax Partner at Grant Thornton UK speaks with tax partners and directors across the network to share their insights on the real estate market and some of the challenges.
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Industries European Real Estate PodcastJessica Patel, Tax Partner at Grant Thornton UK speaks with tax partners and directors across the network to share their insights on the real estate market and some of the challenges.
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Global business pulse - industry analysis Mid-market recovery spreads to more industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Global business pulse - industry analysis A very uneven recovery across industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Global business pulse - industry analysis Mid-market recovery spreads to more industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Global business pulse - industry analysis A very uneven recovery across industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Retail How retail is positioning for successCOVID-19 provided some hard lessons for the retail industry. It is time to turn those into sustainable and well executed growth strategies in 2021.
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Telecoms Can tech and telecom leverage economic headwindsAs most businesses brace for an economic downturn, tech and telecom could see new prospects. But, to turn the headwinds to your advantage, you need to find your unique opportunities and risks.
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Technology Mid-market tech companies lead the way on diversity and inclusionWe explore how the mid-market tech sector can continue to build and nurture a culture that’s increasingly more diverse and inclusive for women.
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Tax Resetting global tax rules after the pandemicBusinesses are seeing rising challenges, and finance heads are dealing with a range of new measures. To say the next 12 months are critical for businesses is an understatement.
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TECHNOLOGY International tax reform: the potential impact on the technology industryIn this article, we’ve summarised key elements of the global tax reform proposals, their potential impact on technology industry and advice from our digital tax specialists on what technology companies can do to prepare.
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Telecoms Can tech and telecom leverage economic headwindsAs most businesses brace for an economic downturn, tech and telecom could see new prospects. But, to turn the headwinds to your advantage, you need to find your unique opportunities and risks.
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TMT TMT industry: Fully charged or on standby?Our research revealed five key trends that resonated with Technology, Media and Telecoms (TMT) industry leaders around the world. We asked a panel of our experts from UK, US, India Ireland and Germany, to give us their reaction to the findings.
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Cybersecurity One size fits nothingTechnology companies must adopt a new approach to digital risk: those that successfully develop a reputation for digital trust by demonstrating an unwavering commitment to cyber security and data privacy will be able to carve out a competitive advantage.
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Technology, media & telecommunications Why it’s time for a 5G reality checkFigures suggest the mobile sector is maturing. While data usage continues to soar, mobile revenues are expected to flatten out over the next few years.
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International business Mid-market businesses lifted by rising tide of optimismOptimism among global mid-market business leaders rose to 67% in the first half of this year and they are markedly more optimistic about their prospects with global optimism having increased by 8%.
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Global business pulse - industry analysis Mid-market recovery spreads to more industriesThe index results for 13 key industries of the mid-market reveals a very uneven recovery from COVID-19
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Hotels COVID-19: Checking in with the hotel industry one year onCOVID-19 provided some hard lessons for the hotel sector. It is time to turn those into sustainable and well executed growth strategies.
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IFRS Alerts
IFRS Alerts covering the latest changes published by the International Accounting Standards Board (IASB).
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Example Financial Statements
General guidance for preparers of financial statements that supports the commitment to high quality, consistent application of IFRS.
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Insights into IFRS 2
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IFRS 3
Mergers and acquisitions are becoming more common as entities aim to achieve their growth objectives. IFRS 3 ‘Business Combinations’ contains the requirements for these transactions.
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IFRS 8
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IAS 36
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International indirect tax guide
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Global transfer pricing guide
Helping you easily find everything you need to know about the rules and regulations regarding transfer pricing and Country by Country reporting for every country you do business with.
The acquisition method set out in IFRS 3 is applied from the point of view of the acquirer – the entity that obtains control over an acquiree which meets the definition of a business. An acquirer must therefore be identified whenever there is a business combination. This article explains how to identify the acquirer.
Our ‘Insights into IFRS 3’ summarises key areas of the Standard, highlighting aspects that are more difficult to interpret and revisits the most relevant features impacting your business.
This article should be read closely with our other ‘identification’ articles:
A critical point to note is the acquirer for IFRS 3 purposes (the accounting acquirer) may not always be the legal acquirer (the entity that becomes the legal parent, typically through ownership of majority voting power in the other combining entity).
What is IFRS 3’s approach to identifying the acquirer?
IFRS 3 initially directs an entity to IFRS 10 ‘Consolidated Financial Statements’ to identify the acquirer, and to consider which entity controls the other (ie the acquiree). In most business combinations identifying the acquirer is straightforward and is consistent with the transfer of legal ownership. However, the identification can be more complex for business combinations when:
- businesses are brought together by contract alone such that neither entity has legal ownership of the other
- a combination is affected by legal merger of two or more entities or through acquisition by a newly created parent entity
- there is no consideration transferred (combination by contract), or
- a smaller entity arranges to be acquired by a larger one.
In these more complex situations, IFRS 3 takes an in-substance approach to identifying the acquirer rather than relying solely on the legal form of the transaction. This in-substance approach looks beyond the rights of the combining entities themselves. It also considers the relative rights of the combining entities’ owners before and after the transaction. Combinations, where the acquirer of a business is the acquiree rather than the acquirer are reverse acquisitions and IFRS 3, provides specific guidance on how to account for these. Refer to page 6 for more details [pdf, 165kb].
This means if, when applying the control guidance in IFRS 10, it is not clear which of the entities being combined is the acquirer, entities should revert back to IFRS 3 which provides additional indicators to consider, as outlined in the full article [pdf, 165kb].
Examples involving the creation of a new entity
In practice, one of the most common situations, where the process of identifying the acquirer requires a more in-depth analysis, is when a new entity is formed to bring about a business combination. This can be done in many ways and sometimes can result in a ‘reverse acquisition’ which is explained on page 6 [pdf,165kb]. The full article also provides two examples of situations of when a new entity might be formed to bring about a business combination.
Business combination effected by exchanging equity interests
When considering a combination effected primarily by exchanging equity interests, other factors and circumstances shall also be considered such as:
- Relative voting rights in the combined entity - the acquirer is usually the entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity (see Example 3 [pdf, 165kb]).
- Existence of a single large minority interest in the combined entity - the acquirer is usually the entity whose single owner or organised group of owners holds the largest minority voting interest in the combined entity, if no other owner or organised group of owners has a significant voting interest.
- Composition of the governing body of the combined entity - the acquirer is usually the entity whose owners have the ability to elect or appoint
or remove a majority of the members of the governing body of the combined entity. - Senior management of the combined entity - the acquirer is usually the entity whose (former) management dominates the combined management.
- Terms of the exchange of equity interest - the acquirer is usually the entity that pays a premium over the pre-combination fair value of the equity interest of the other combining entity or entities.
It is important to note there is only ever one acquirer in a business combination. In those that involve more than two entities, it is important to consider which entity initiated the combination and the relative size of the combining entities.
Reverse acquisitions
Another common situation where the process of identifying the acquirer requires some in-depth analysis is when shares are exchanged, and the result is that the accounting acquirer is not the legal acquirer. Normally it is the entity who issues shares to acquire a business who obtains the control of the business it acquired. It is then identified as the acquirer. However, it could happen that following the issuance of the shares by the entity (legal acquirer), it is instead the legal subsidiary that is identified as the acquirer. These are known as reverse acquisitions.
One situation in which reverse acquisitions often arise is when a private operating entity is looking for a fast-track to a public listing. To accomplish this, the private entity arranges for its equity interests to be acquired by a smaller, publicly-listed entity. The listed entity effects the acquisition by issuing shares to the owners of the private operating entity.
After the exchange of shares, the former shareholders of the private entity, as a group, hold the majority of the voting rights of the combined entity. In addition, the former shareholders of the private entity have appointed the majority of the members of the new combined entity’s board.
In this case, although the publicly-listed entity issued shares to acquire the private entity, the listed entity will be identified as the accounting acquiree and the private entity as the accounting acquirer. This is because the former shareholders of the private entity, as a group, have retained control over the private entity.
The accounting for reverse acquisitions depends on whether the accounting acquiree is a business. When the accounting acquiree is a business, the recognition and measurement principles in IFRS 3 apply, including the requirement to recognise goodwill. If the accounting acquiree is not a business, then it is outside the scope of IFRS 3.
Business combinations by contract alone
When a business combination is achieved by contract alone, such as a stapling arrangement, with no combining entity obtaining control of the other combining entities, the acquirer should usually be the combining entity whose owners (as a group) receive the largest portion of the voting rights in the combined entity. This matter was considered by the IFRIC and an agenda decision confirming this accounting treatment was issued in May 2014.
We hope you find the information in this article helpful in giving you some insight into IFRS 3. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or your local member firm.
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