Canadian GAAP

Canadian GAAP - IFRS Comparison Series Issue # 11 – Business Combinations

Both IFRS and Canadian GAAP are principle based frameworks, and from a conceptual standpoint, many of the general principles are the same. However, the application of those general principles in IFRS can be significantly different from Canadian GAAP. Therefore, to understand the magnitude of the differences between IFRS and Canadian GAAP, it is essential to look beyond the general principles and look at the detailed guidance provided in the standards. This is our eleventh issue in a series of publications, which will provide detailed information on the key differences between IFRS and Canadian GAAP. In this issue, consolidation and business combinations will be presented,
When a bargain purchase arises, an acquirer must reassess whether it has correctly identified and measured all of the components of the business combination. If it truly is a bargain purchase the goodwill is reduced to zero and any gain remaining is recognized in the income statement. Under Canadian GAAP, the timeframe for adjustments to the purchase equation subsequent to the acquisition date is consistent with the 12month window provided in IFRS. However, Canadian GAAP does allow for a window beyond 12 months in very unusual circumstances. Such adjustments do not require retrospective application with restatement of comparative figures, unless the adjustment is for the correction of an error. Adjustments to the measurement of the business combination can be made within the measurement period, which cannot exceed 12 months from the date of acquisition. Adjustments are limited to better knowledge about facts and circumstances that existed at the acquisition date. Such adjustments are made retrospectively and comparative information is revised. Adjustments that are made based on conditions that exist after the acquisition date should be regarded as subsequent transactions that are not part of the business combination and should be treated separately. Under IFRS, the non-controlling interest is measured using either: The fair value of the non-controlling interest; or The proportionate
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situations that do not meet the definition of a business combination. The cost of the purchase in a reverse takeover should be measured in accordance with Section 1581. However, there is specific guidance provided on the determination of the fair value of the shares when the quoted market prices of the shares of the legal subsidiary is not indicative of the fair value of the shares the legal subsidiary would have had to issue or if the fair value is not otherwise reliably measurable or if there is a thin or inactive market for its shares.

provide guidance on situations that do not meet the definition of a business combination. The cost of the purchase in a reverse takeover transaction should apply the measurement principles of IFRS 3 Revised. There is no guidance under IFRS on measurement if the quoted market prices of the shares of the legal subsidiary is not indicative of the fair value of the shares the legal subsidiary would have had to issue or if the fair value is not otherwise reliably measurable. There is also no guidance under IFRS on measurement when the legal parent has a thin or inactive market for its