How To Identify The Acquirer In A Business Combination? The key criterion, in identifying an acquirer is that of control. This term is the same as that used in IFRS 10 Consolidated Financial Statements for identifying a parent–subsidiary relationship. Control of an investee is defined as existing when ‘the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee’. In some situations, it is very easy to identify an acquirer.
For example, if entity A acquires more than half the shares of entity B, then entity A will have control over entity B because its majority shareholding will give entity A more than half of the voting rights of entity B as well as control of entity B’s board.
In other situations, identification of an acquirer requires judgement. Consider the situation where entity A combines with entity B. To effect the combination, a new company (entity C) is formed, which issues shares to acquire all the shares of both entities A and B. As entity C is created solely to formalize the organization structure, it is not the acquirer although it may be considered to be the legal parent of both the other entities.
As noted in paragraph B18 of Appendix B to IFRS 3, one of the entities that existed before the combination must be identified as the acquirer, as entity C is not a party to the decisions associated with the business combination, just a part of the form of the organization structure created to facilitate the combination. As noted earlier, if entity A is identified as the acquirer, then the assets and liabilities of entity B (the acquiree) are measured at fair value at acquisition date.
Paragraphs B14–B18 of Appendix B to IFRS 3 provide some indicators to assist in assessing which entity is the acquirer: