A business combination is defined as a transaction or other event in which an acquirer

obtains control of one or more businesses. Under ASC 805, control is defined as a

having a controlling financial interest, as discussed in ASC 810. According to ASC
810, control is based on one of two common transaction characteristics that determine
whether to apply the variable interest entity (VIE) approach or the voting interest
(VOE) approach. ASC 810 requires a detailed analysis of which reporting entity, if
any, should consolidate the VIE under the VIE approach. If the reporting entity is not
a VIE, the VOE approach should be applied. See CG 1 for information on the two
consolidation models (described in further detail in CG 2 and CG 3 for the VIE and
VOE models, respectively) as well as CG 1.2.3 for exceptions to consolidation (e.g.,
investment companies).
1.1.2 Transactions excluded from the scope of ASC 805
The following types of transactions are specifically excluded from the scope of ASC
805:
 Formation of joint ventures: In practice, the term “joint venture” is usually
referred to rather loosely. Structures or transactions that are not joint ventures for
accounting purposes are commonly called joint ventures. The scope exception
for the creation or formation of a joint venture applies only if the transaction
meets the accounting definition of corporate joint venture under ASC
323, Investments – Equity Method and Joint Ventures. By definition, no one
party obtains control in the creation of a joint venture. The most distinctive
characteristic of a joint venture is participants’ joint control over the decision-
making process, although other characteristics must also be met (e.g., the
purpose of the entity must be consistent with that of a joint venture). See EM
6 for additional information. If the transaction does not meet the definition of a
corporate joint venture, the transaction does not meet the scope exception and
thus should be evaluated under ASC 805.
 Acquisition of an asset or a group of assets that does not constitute a
business: Consistent with the principles governing the accounting for business
combinations, the acquisition of an asset or a group of assets that is not a
business should not be accounted for as a business combination. See PPE 2 for
additional information.
 Combinations involving entities or businesses under common control: As
discussed in ASC 805-50-15-6, common control transactions are transfers and
exchanges between entities that are under the control of the same parent, or are
transactions in which all of the combining entities are controlled by the same
party or parties before and after the transaction and that control is not transitory.
See BCG 7 for the accounting for such a transaction. Sometimes NewCos are
formed as part of a common control transaction, which is discussed in ASC 805-
50-15-6 and BCG 7.
 Combinations between not-for-profit organizations and acquisitions made
by not-for-profit organizations: Combinations between and acquisitions by
not-for-profit organizations are excluded from the scope of ASC 805. Due to the
nature and purpose of these organizations, these combinations might not involve
the exchange of equal economic values. Such combinations are accounted for in
accordance with ASC 958, Not-for-Profit Entities. See PwC’s Not-for-profit
entities (NP) guide for details on accounting for not-for-profit entities.
 Financial assets and financial liabilities of a consolidated VIE that is a
collateralized financing entity: Financial assets and financial liabilities of a
consolidated VIE that is a collateralized financing entity are excluded from the
scope of ASC 805. See FV 6.2.7 for additional information.