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POSSIBLE APPROACHES FOR ACCOUNTING OF BUSINESS COMBINATIONS UNDER COMMON CONTROL- EVIDENCE FROM CROATIAN CONSOLIDATED GROUPS

In modern business environment business combinations represent the way the companies are trying to achieve certain goals such as to increase market share, to enter into new markets, to eliminate competition, to acquire new technology etc. The majority of business combinations worldwide are those which result in the acquisition of new control and ownership by the acquirer. International Financial Reporting Standards (IFRSs), as the global financial reporting standards, contains guidelines for accounting of such business combinations. More concretely, the accounting treatment of such business combinations is defined within International Financial Reporting Standard 3 – Business combinations (IFRS 3) which prescribes the application of acquisition method for business combinations which result in gaining new control and ownership by the acquirer. Besides those business combinations (which result in gaining new control and ownership by the acquirer), there are business combinations which result in continuing ultimate control and ownership. Those business combinations are commonly known as business combinations under common control. Business combinations under common control are those in which all the companies or businesses involved in business combinations are ultimately controlled by the same party, both before and after the business combinations. Such business combinations are often considered as a group restructuring. The accounting treatment of business combinations under common control is not defined by IFRS 3. Thus, the acquirer within business combinations under common control which apply IFRSs has to implement its own approach for accounting of such business combinations. The lack of guidelines for accounting of business combinations under common control result in the application of diverse accounting methods in practice when these combinations are involved. Due to that, International Accounting Standard Board (IASB) has initiated the research project of developing accounting guidelines in IFRSs for business combinations under common control. IASB has issued a discussion paper in 2020 in which the Board’s attitudes and meanings towards the application of accounting method for business combinations under common control has been presented and opened for stakeholders’ public discussion. Since large consolidated groups as well as consolidated groups which contain public interest entity in Croatia prepare consolidated financial statements according to IFRSs, this paper aims to identify whether consolidated groups in Croatia, which prepare consolidated financial statements according to IFRSs, have defined an accounting method to be used for the calculation 107 of business combinations under common control. The research has included all consolidated groups in Croatia that have prepared consolidated financial statements for 2017 and 2019 according to IFRSs. The research is carried out on the analysis of notes to consolidated financial statements of consolidated groups in Croatia for 2017 and 2019 which have been publicly declared. In order to fulfil the basic purpose of the paper, the methods of descriptive statistical analysis have been used. The research results have indicated that only 9% of notes to consolidated financial statements contain the information of accounting method that have to be applied for business combinations under common control. Moreover, the results of research have indicated that predecessor’s book value method is mostly applied for business combinations under common control in consolidated groups in Croatia.

business combinations under common control, accounting methods, acquisition method, predecessor’s book value method, IFRS

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