An intangible asset is identifiable if it meets either the contractuallegal criterion or the separable. Reverse acquisitions acquirer in a reverse acquisition 17 2. Identification of the acquirer in accordance with ifrs 3 and the parent in accordance with ifrs 10 consolidated financial statements in a stapling arrangement 16 2. In this case, the second entity is usually the larger entity. In that case we believe that ifrs 3s principles should be applied in full.
The iasb and fasb decided to address the accounting for business combinations in two phases. A business is an integrated set of activities and assets that is capable of being conducted and managed to provide a return to the investors by way of dividends, lower costs or other. This usually involves the listed company issuing its shares to the private company shareholders in exchange for their shares. Jul 01, 2009 ifrs 3 clarifies how to identify business combination. Further, the aasb agrees that the combining entity in the stapling arrangement that is identified as the acquirer for the purpose of ifrs 3 as revised in 2008 should prepare consolidated financial statements of the combined entity in accordance with ifrs 10.
Identifying an acquirer if a new entity is formed to effect a business combination bc98bc101 convergence and clarification of sfas 141s and ifrs 3s guidance for identifying the acquirer bc102bc103 identifying the acquirer in business combinations involving. Paragraphs b31b40 of ifrs 3 provide application guidance on the recognition of intangible assets and the different criteria related to whether they are established on the basis of a contract. We generally agree with the proposed amendments to ifrs 3. Accounting for business combinations according to the. Ifrs 3 business combinations may 2014 identification of the. Sep 10, 2014 an investment must constitute a business before we can apply ifrs 3. Identifying the acquirer 6 for each business combination, one of the combining entities shall be identified as the acquirer.
This chapter examines business combination ifrs 3 standard that applies to transactions or other events that meet the definition of the term business combination. Business combinations ifrs 3 international trends in. But while ifrs 10 defines a control and prescribes specific consolidation procedures, ifrs 3 is more about the measurement of the items in the consolidated financial statements, such as goodwill, noncontrolling interest, etc. Definitions acquiree the business or businesses that the acquirer obtains control of in a business combination. Consolidated financial statements in a stapling arrangement.
The guidance in ifrs 10 consolidated financial statements is used to identify an acquirer in a. Under ifrs acquirers account for most business combinations following the acquisition method under ifrs 3. It provides examples of intangible assets commonly found in business combinations and explains how. How to identify the acquirer in a business combination. More specifically, the submitter is seeking clarification of whether an acquirer identified for the purpose of ifrs 3 as revised in 2008 is a parent for the purpose of ifrs 10 in circumstances in. Accounting for intangible assets in a business combination is therefore a sensitive area of financial reporting. Acquirers can expect reported amounts of intangible assets and goodwill to be closely scrutinised by investors, analysts and regulators. Identifying an acquirer ifrs 10 the guidance in ifrs 10 is used to identify an acquirer in a business combination, i. Gaap consolidation identifying a controlling financial interest contingencies and loss recoveries contracts on an entitys own equity convertible debt current expected credit losses disposals of longlived assets and.
As at 1 january 2016 ifrs 3 business combinations effective date periods beginning on or after 1 july 2009 specific quantitative disclosure requirements. The ifrs interpretations committee the committee received a submission seeking clarification on the interaction of the requirements in ifrs 3 business combinations for identifying an acquirer with the requirements in ifrs 10 consolidated financial statements for deciding whether control exists. Reverse acquisition by a listed company grant thornton. Gaap consolidation identifying a controlling financial interest contingencies and loss recoveries contracts on an entitys own equity convertible debt current expected credit losses disposals of longlived assets and discontinued operations distinguishing. Click to download the new guide to ifrs 3 and ias 27 pdf 647k. Statements is used to identify the acquirer the entity that obtains control of the acquiree. If the acquiree in a business combination is a vie, the primary beneficiary of the vie is considered the acquirer.
The ifric also noted that paragraph ie28 in the illustrative examples accompanying ifrs 3 provides indicators for identifying the existence of a customer. Ifrs 3 business combinations ifrsbox making ifrs easy. Goodwill is then recognised to the extent the deemed acquisition cost exceeds the fair value of the listed companys identifiable assets and liabilities. Ifrs 3 business combinations a business combination is a transaction or other event in which an acquirer obtains control of one or more businesses. Refer to asc 805 and ifrs 3 for all of the specific requirements applicable to accounting for business combinations. The revised ifrs 3 is part of a joint effort by the iasb and the us financial accounting. Intangible assets under ifrs 3 02 jul 2015 the last several years have seen an increased focus by companies on mergers and acquisitions as a means of stabilising their operations and increasing stakeholder value by achieving strategic expansion and cost reduction through business combinations.
Ifrs 3 requires application of the acquisition method for each business combination. Business combinations business combinations sec reporting considerations carveout transactions comparing ifrs standards and u. Ifrs 3 provides limited guidance on determining fair value. Chapter 3 business combinations linkedin slideshare. It prescribes the acquisition method in accounting for business combination. Accounting for business combinations 3 relevant whether a seller operated the set as a business or whether the acquirer intends to operate the set as a business asc 80510558. Gaap and ifrs related to accounting for business combinations. Under ifrs 3, business combinations should be accounted for using the acquisition method consisting of the following steps ifrs 3. The hkicpa supported the reasons for revising ifrs 3 of the iasb. Ifrs 3 must use acquisition method identify and acquirer acquisition date is the day the acquirer obtains control of the acquiree need to measure the fair value of the acquiree as a whole at the acquisition date measure identifiable assets. Fasb issued a similar standard in december 2007 sfas 141r see our news story of 5 december 2007. Identifying an acquirer if a new entity is formed to effect a business combination bc98bc101 convergence and clarification of sfas 141s and ifrs 3s guidance for identifying the acquirer bc102bc103 identifying the acquirer in business combinations involving only mutual entities bc104bc105.
Ifrs 3 requires that all business combinations be accounted for by applying the acquisition method. Indicators that the legal subsidiary is the accounting acquirer include. Recognising and measuring the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. One of the combining entities is identified as the acquirer for each business combination.
Ifrs 3 outlines the accounting when an acquirer obtains control of a business e. Conceptual framework proposed amendments to ifrs 3 the ed. The revised ifrs 3 is part of a joint effort by the iasb and the us financial accounting standards board fasb to improve financial reporting while promoting the international convergence of accounting standards. Reverse acquisition private operating companies seeking a fast track stock exchange listing sometimes arrange to be acquired by a smaller listed company sometimes described as a shell company. Ifrs 3 as revised in 2008 requires an acquirer to recognise the identifiable intangible assets of the acquiree separately from goodwill. The accounting treatment of goodwill as stipulated by ifrs 3.
Such business combinations are accounted for using the acquisition method, which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. The date on which the acquirer obtains control of the acquiree. Click for iasb press release on ifrs 3 2008 pdf 60k. Business combinations and changes in ownership interests. Acquirer the entity that obtains control of the acquiree.
Finally, one additional factor that can be looked to is the presence of goodwill. An investment must constitute a business before we can apply ifrs 3. The business or businesses that the acquirer obtains control of in a business combination. Ifrs 3 outlines the accounting when an acquirer obtains control of a. It also raises questions as to whether ifrs 3 has been applied correctly.
The 4 step acqusition method for business combinations under. This article summarises some of the main points which, from our experience, tend to steer the accounting for business acquisitions in different directions if overlooked. Tentative agenda decision ifrs 3 business combinations. We note that, in march 2018, the board updated and aligned most references to the 2018 conceptual framework in other ifrs standards, to promote consistency in financial reporting and to avoid potential confusion. Identification of the acquirer in accordance with ifrs 3 and the parent in accordance with ifrs 10. Identifying the acquirer bc82 bc83 developing the guidance in sfas 141 bc84 bc92 developing the guidance in ifrs 3 bc93 bc101 convergence and clarification of sfas 141s and ifrs 3s guidance for identifying the acquirer bc102 bc103 identifying the acquirer in business combinations involving only mutual entities bc104 bc105. However under ifrs 3 the second entity is the acquirer if it has the power, by virtue of its shareholding in the listed company, to govern the financial and operating policies of the legal parent so as to obtain benefits from its activities.
Identifying the acquirer business combinations involving newly formed 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. This includes identifying the correct accounting acquirer, which is not always the legal acquirer. Helps those working with special purpose entities to identify the differences between us. Ifrs 3 business combinations september 2011 business combinations involving newly formed entities. Reverse acquisition by a listed company grant thornton insights. The objective of this ifrs is to deal with the information that an entity provides within their financial statements about a business combination and the effect of this combination on the financial statements. Ifrs 3 2008 resulted from a joint project with the us financial accounting standards board. Chapter 3 identifying the acquirer and determining the acquisition date 44 3. Hkfrs 3 is to maintain international convergence arising from the revision of ifrs 3 business combinations ifrs 3 by the international accounting standards board iasb. Application of the purchase method identifying an acquirer paragraphs 17 identifying an acquirer paragraphs 17222222 bc36 the draft ifrs carries forward from ias 22 the principle that, in a business combination accounted for using the purchase method, the. Identifying an acquirer if a new entity is formed to effect a business combination bc98bc101 convergence and clarification of sfas 141s and ifrs 3s guidance for identifying the acquirer bc102bc103 identifying the acquirer in business combinations involving only mutual entities bc104bc105 determining the acquisition date bc106bc110. Navigating the accounting for business combinations grant thornton.
The submitter sought clarification with respect to whether an acquirer identified for the purpose of ifrs 3 2008 is a parent for the purpose of ifrs 10 in circumstances in which a business. If you need to deal with the consolidation, then you need to apply both standards, not just one or the other. Control refer to ifrs 10 ownership of more than half the voting right of another entity power over more than half of the voting rights by agreement with investors power to govern the financial and operating policies of the other. Identifying the acquirer business combinations involving newly formed. Ifrs 3 must be applied when accounting for business combinations, but does not apply to. Under the acquisition method of accounting, an acquirer is identified. Ifrs 3 if the guidance in ifrs 10 does not clearly indicate which of the combining entities is an. When the listed company is the accounting acquiree and is also a business for ifrs 3 purposes, ifrs 3 s reverse acquisition approach applies in full. Basis for conclusions on ifrs 3 business combinations. Ifrs 3 establishes principles and requirements for how an acquirer in a business combination.
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