The International Accounting Standards Board (IASB) has issued a revised IFRS 3 Business combinations and, as a consequence, amended IAS 27 Consolidated and separate financial statements.
The revised standards will be effective from 1 July 2009, with early adoption permitted for for-profit entities. The AASB has approved the corresponding amending standard at its March 2008 meeting and will make the amending standard available on the AASB website.
The board will consider the revised standard's suitability for combinations relating to not-for-profit entities. The board will advise of its decision before the mandatory application date.
This revision represents the second phase of the business combinations project which was undertaken jointly with the US Financial Accounting Standards Board.
In 2004, the first phase of the project introduced IFRS 3 which includes pooling of interests and goodwill impairment and amortisation, and replaced the predecessor IAS 22 Business combinations. The second phase brings with it more changes to the accounting requirements.
Some of the key changes are summarised as follows:
| IFRS 3 (2004) |
Revised IFRS 3 (2008) |
| IFRS 3 (2004) excludes combinations of mutual entities and combinations by contract alone. |
The scope of IFRS 3 (2008) now includes combinations of mutual entities and combinations by contract alone. |
| Incremental acquisitions: requirement to measure assets and liabilities at fair value at each stage of the acquisition. |
Incremental acquisitions: goodwill is measured as the difference at acquisition date between the value of investment in the business held before the acquisition, the consideration transferred and the net assets acquired. |
| Fair value option not permitted. Non-controlling equity interests measured at the proportionate share of the acquirees net identifiable assets. |
Non-controlling equity interests are measured either at fair value or, as proportionate share of the acquirees net identifiable assets. |
| Acquisition-related costs were capitalised and included as goodwill. |
Acquisition-related costs must be accounted for separately from the business combination as expenses. |
| Contingent consideration for liability items were adjusted against goodwill. |
Contingent consideration for liability items must be recognised at acquisition date, with changes in value recognised in accordance with the relevant IFRSs. |
| Silent on this matter. |
Changes in ownership interest of a subsidiary (not resulting in loss of control) will be accounted for as an equity transaction i.e. no impact on goodwill or will it give rise to a gain or loss. |
| Parent shall recognise excess losses attributable to the non-controlling (minority) interests unless the minority has a binding obligation and is able to further invest to cover the losses. |
Entity shall attribute share of losses to non-controlling interests even where this results in a deficit balance in the non-controlling interests. |
| Required retained interest to be measured in accordance with the relevant standard e.g. IAS 28 if it is an associate. |
On loss of control of a subsidiary, the entity (investor) shall measure the resulting gain or loss and any investment retained in the former subsidiary. |
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