IFRS 3 defined a business combination as 'the bringing together of separate entities or businesses into one reporting entity.'
In developing IFRS 3, the IASB considered adopting the definition of a business combination in SFAS 141. It did not do so because that definition excluded some forms of combinations encompassed in IAS 22 Business Combinations (which IFRS 3 replaced), such as those described in par. BC5 in which none of the former shareholder groups of the combining entities obtained control over the combined entity. Accordingly, IFRS 3 essentially retained the definition of a business combination from IAS 22.
An entity shall determine whether a transaction or other event is a business combination by applying the definition in this IFRS, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. Paragraphs B5-B12 provide guidance on identifying a business combination and the definition of a business (IFRS 3 Business Combinations par. 3).
Identifying a business combination (application of paragraph 3)
This IFRS defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses.
An acquirer might obtain control of an acquiree in a variety of ways, for example :
- by transferring cash, cash equivalents or other assets (including net assets that constitute a business);
- by incurring liabilities;
- by issuing equity interests;
- by providing more than one type of consideration; or
- without transferring consideration, including by contract alone (see paragraph 43).
A business combination may be structured in a variety of ways for legal, taxation or other reasons, which include but are not limited to :
- one or more business become subsidiaries of an acquirer or the net assets of one or more businesses are legally merged into the acquirer;
- one combining entity transfer its net assets, or its owners transfer their equity interests, to another combining entity or its owners;
- all of the combining entities transfer their net assets, or the owners of those entities transfer their equity interests, to a newly formed entity (sometimes referred to as a roll-up or put-together transaction); or
- a group of former owners of one of the combining entities obtains control of the combined entity.
(IFRS 3 Business Combinations par. B5 and B6).