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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Common Control

Definition of “common control” in applying FAS 141

FAS 141 does not provide a definition of the term “common control.” Nevertheless, this did not prevent FASB from excluding combinations of entities under common control from being subject to fair value purchase accounting requirements. In EITF 02‐5, the Task Force was unable to reach a consensus regarding this definition. The discussion of this matter included in the EITF Abstract of that issue, however, indicates the SEC Staff position that common control only exists between or among separate entities in the following situations:

  1. An individual or entity holds more than 50% of the voting ownership interests of each entity,

  2. Immediate family members (defined below) hold more than 50% of the voting ownership interests of each entity with no evidence present that those family members will not vote their shares identically, and

  3. A group of shareholders holds more than 50% of the voting ownership interests of each entity, and there is an agreement documented contemporaneously in writing to vote the majority of the entities' shares identically.

  4. For the purpose of this determination, immediate family members include a married couple and their children, but not their grandchildren. Entities that are owned in varying combinations by living siblings and their children are to be carefully considered regarding the substance of the ownership and voting relationships.

Exchanges of ownership between commonly controlled entities

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