Subject of the Essay Sample: Issues Raised in IFRS's BCUCC Project

Published: 2022-09-09
Subject of the Essay Sample: Issues Raised in IFRS's BCUCC Project
Type of paper:  Essay
Categories:  Accounting
Pages: 6
Wordcount: 1541 words
13 min read

In the wake of the international community coherence in the modern world, there has been an increase in the number of foreign companies operating across different sovereignties. This fact has necessitated the standardization of the accounting documents and procedures. This necessity has, therefore, resulted in the formation of international organizations tasked with the role of putting appropriate measures in place that will ensure the attainment of standardization attained in the field of accounting. The International Accounting Standards Board (IASB) and International Financial Reporting Standards Board (IFRS) are the bodies tasked with standardizing the accounting field by coming up with IFSR standards. The formation of these bodies, therefore, is with the aim of ensuring the accounting documents of all the different companies all over the world are comparable.

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Despite these efforts, the organizations are yet to come with well-set guidelines that will guide the Business Combinations under Common Control (BCUCC) (Christian & Ludenbach, 2013). Therefore, different companies under common control lack clear instructions regarding the accounting process of their business structure. This fact has made the aspect of book comparison in these categories of business difficult as there are no set standards in their accounting. Different security regulators have therefore come out to raise concerns about the lack of guidance in the IFRS measures on BCUCC and group restructurings. The concerns have prompted the IFRS board to make strides in the acquiring of standards that will be of guidance to BCUCC and group structured forms of businesses.

In the process of coming up with a set of guidelines that will be followed by the BCUCC business structures, IFRS board tasked its staff to work on a project whose scope will be BCUCC businesses and analyse the various issues unique to the sector and come up with recommendations that they would deem to be best applicable to the BCUCC type of businesses. Following this directive, the IFRS staff worked on the BCUCC project to meet the objectives required of them by the board. Some of the goals were, to consider the BUCC's that were excluded from the scope of IFRS 3 and clarification of BCUCC definition and group restructurings. At the end of the project, they released a report that dwelled on the issues for concern regarding the BCUCC businesses. These issues were forwarded to the board that mandated with coming up with the decision regarding the various standards set in the accounting world.

The IFRS noted some issues. One of the issues that were described by the project was that the board needed to clarify that the scope of the BCUCC project was to include transactions under common control whereby the reporting entity automatically obtained the control of the business whether IFRS identified them as the reporting entity or not. This issue was highlighted since the IFRS3 was ambiguous in the guidelines that are to be followed in defining the acquirer (Dick & Missionier-Piera, 2010). For instance, in a transaction involving the transfer of business between a group of entities, and it happened to be unclear which of the combining entities was the acquirer then the company would not be categorized under the BCUCC according to IFSR. Therefore, this issue clarified the matter removing confusion in the classification of the BCUCC businesses. This clarification was necessary as the transactions involving transferring of business between two or more entities have similar entities. These entities are the controlling entities, the transferring entity, the transferred entity, and the receiving entity. Due to this emphasis, it would, therefore, be unfair to end categorizing some of them as BCUCC and not all. This definition, thus, brings clarity and fairness regarding the BCUCC businesses.

Another issue highlighted by the project was that the reporting entity needed to be the one accounting for the transaction. Under this, it was not further specified as to whether the financial statement would be reported as either consolidated, individual or separate. Therefore, any of the three would be appropriate. The reason the project failed to specify the exact financial statement the entity recorded the transaction was that the different financial statements are affected by the specifics of a transaction. In doing so, the issue was in line with the scope in IFRS 3. This scope in IFRS also specifies the entity that is to account for the transaction, but it does not specify to which financial statement the reporting entity was to record it.

In the light of these revelations, the acquisition method and the revised ceiling approaches remain the two most viable options to use in approach for acquisition analysis for BCUCC businesses. The full fair approach and the ceiling methods in light of these findings were found to provide little information when the transactions involved equal or near equal values (Schmidt, 2014). Comparing the ceiling and the revised ceiling approaches, the revised ceiling approach is better since it is an improved version of the former. This means that some of the challenges presented by the ceiling approach are solved under the revised ceiling approach. The method follows the procedure that slightly differs from the one used by IFRS. Under the revised ceiling approach when the fair value being considered exceeds the reasonable values of identified assets, a tentative amount of goodwill will be calculated. The carrying amount of provisional goodwill is then allocated to the receiving entity's cash generating units that are to benefit from the synergies of the combination.

After this, the recoverable amounts of the cash generating units are determined and then compared with their carrying amounts. If the recoverable value exceeds the carrying amount, the tentative goodwill is confirmed and equity to recognize is inexistent. In the instance the recoverable amount is fewer than the carrying amount, provisional goodwill is adjusted, and distribution from equity is existent. This method differs from the IFRS in the sense that impairment loss is recognized in IFRS while revised ceiling method distribution from equity is the one recognized. In conclusion, I would recommend we use the revised ceiling method in our acquisition for BCUCC businesses.

Thank you.

Students Name.



P.O BOX 181,


October 13, 2018.



P.O BOX 88,


Dear Mr Albert,


I would wish to inform you that there are new IFRS proposals that I think will have an impact on your firm. One is that in the event of a transfer of business from one business entity to the other that has one recording transaction statements on behalf of the other, the business model is automatically considered to be a Business Combinations under Common Control (BCUCC) model. Since you acquired Virginia Company Ltd a subsidiary of Clouds Company Ltd with a Non-Controlling Interest of 15%, it means that your business model is automatically a BCUCC business model.

For any BCUCC business model, one requires to employ an acquisition model or revised ceiling approaches for recording the acquisition event. This recommendation is contrary to the past where the methods that were considered as four. According to the new propositions by IFRS, the other two ways that were available for use were the ceiling, and the full fair approaches are not as effective since they offer very few information when the transactions involved are equal or near equal. This fact will require you to review the acquisition records if indeed they were undertaken and then find out which method was used. If a different method apart from the ones recommended were used, then it would necessitate a repeat of the exercise. The acquisition method is important as they reveal important aspects like goodwill and others which change on the course of time depending on the value of the company on different occasions. The purchase considerations, the fair value of the business and the net identifiable assets value will be used in calculating the goodwill.

Having bought the company at a non-controlling interest of 16%, it means that you serve as a minority shareholder to the business set up. This fact deprives you power over the control of activities of the company on a day to day basis. However, you are entitled to voting on fundamental decisions that have a significant impact on the business. This fact means you are more of a bystander in a strategic position. Besides voting rights, you can also sit on the board of the company. All these conditions mean that your level of influence on the company is less to that of the majority shareholder.

Having outlined all the propositions by IFRS and their possible effects on your business, it is essential you embark on taking the recommended measures and ensure that you are up to date with the new propositions. You need to assess the amount of goodwill as per the suggested methods as they vary according to the value of the business. Regarding your stake in the business, the only way you can change the situation is by acquiring majority shares of the business, or a minimum of 51% in case you are two shareholders. By doing taking this action, you can be able to take charge of the company to be able to decide most of the aspects regarding the running of the business.

Yours faithfully,

Students Name.

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