Acquisition of business is quite common in today's fast moving dynamics of the world and every such stakeholder of the entity would be interested to know all implications related to its valuation or for reporting purposes.
Here the acquisition of Business would mean a "Business" as per the definition of Ind-AS 103 (which is not an asset acquisition) and where an Acquirer should takes CONTROL (as defined under Ind-AS 110) over the Business of Acquiree.
In order to implement such Business acquisitions, there must be a date from which such acquisition is to be accounted and that date should have all Fair valuation of the Business of acquiree and accordingly Goodwill/ bargain purchase will be calculated.
Hence, identifying an ACQUISITION DATE is of much relevant in order to get substantially correct picture of the whole process.
Let's have a look at the below extracts from Companies act 2013 and relevant accounting standards i.e. Ind-AS in order to get the clarity about the possible interpretational gaps related to ACQUISITION DATE -
As per Companies Act 2013
Para 232 (6) - "The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date"
As per Ind-As 103 -"Business Combination"
Para 8- "The acquirer shall identify the acquisition date, which is the date on which it obtains control of the acquiree".
Para 9- The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree - the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date.
Now,
Companies act which defines appointed date in different manner whereas Accounting Standards are more focusing on transfer of effective control. The interpretational gaps could be discussed as per the below pointers -
Whenever a scheme of such arrangement are being processed, a document is being made and gets approved by the appropriate authorities within acquiree & acquirer subsequently it goes to the court for its approval. Now as per the Companies act it is clearly mentioned that an appointed date will mentioned by the scheme itself and the same will be the date of effective transfer of such acquisition and there will not be any subsequent date and hence it could be interpreted that even before the court approval (which is normally a milestone for any such acquisition in India) an effective date can be determined for such scheme,
As per the Ind-As 103, it is clearly visualize that Effective date of such acquisition will be the date when effective control has been transferred and standard itself indicates towards its legal title transfer i.e. Court approval should take place before it is assumed that a effective control has happened, however it provides certain other circumstances to be considered in order to define the rational of effective date of such acquisition,
There would be another scenario where High court itself defines a date from which the acquisition will be effective which could be contrary to sec 232 (6) &/or Ind-As 103 and raises concerns over to which date will prevail ?
There is SEBI circular dated 30 Nov 2015 which talks about to provide an auditor's certificate about the accounting treatment contained in the scheme compromise, arrangements & amalgamation under Companies Act 2013.
To define the phrase "date on which it obtains control of the acquiree" it could be understood by using a example - Where a process started to resign of certain directors from acquiree business and re-appointing at acquirer board where it has got power now to start making decision over the newly acquired business however court approval is expected to be received after 6 months then as per Ind-AS 103, an effective control has been obtained (subject to other considerations as well),
This could lead towards the appointed date (as mentioned in the agreement made between the acquiree & acquirer) would be relevant for such acquisition (as law will prevail over accounting standards) and since fair value accounting is only permitted after the applicability of Ind-As hence it will make a room to control the date when such FAIR VALUATION accounting will be done..
Readers will appreciate about the main objective of the standard/ laws and an approach which one can follow while keeping in mind the basis of origin of such requirements. There could possibly be some specific situations or circumstances where the interpretation of any standard will be different as we should always keep in mind that IND-AS is principle based standards and lot more areas need management judgment in line with the standards relevant interpretation and best practices. Any Law related views are purely an interpretation by author and should not be construed as exhaustive in nature.
One has to look into all related facts and patterns before concluding this type of assessment based on this concept. Readers are requested not to take this article as any kind of advice (it is not exhaustive in nature) and should evaluate all relevant factors of each individual cases separately.
The author can also be reached at anuj@gyanifrs.com
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