2018-01-31 00:00:00 Pro Accounting English Ensure your clients remain in compliance with IFRS standards, particularly if they have recently made business acquisitions, by reviewing... https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2018/02/12110859/Client-and-accountant-review-business-combination-under-amended-ifrs-3.jpg How to Treat Business Combinations Under Amended Standard IFRS 3

How to Treat Business Combinations Under Amended Standard IFRS 3

1 min read

In December 2017, the International Accounting Standards Board updated several sections of its IFRS regulations, making narrow-scope amendments to four sections of the code. One such section, IFRS 3, which regards business combinations, received an update that takes effect in January 2019, though businesses may apply the new rules early if desired. If you have clients that have recently made business acquisitions or purchased stakes in other companies, they should be aware of the new regulations.

IFRS 3 lays out the rules a business must follow when acquiring a stake in another company. In summary:

  • The acquiring business must measure the cost of its stake in the new company using the fair value method
  • The business must properly allocate its cost to the assets and liabilities obtained in the acquisition using the fair value method
  • It must allocate to goodwill any excess cost not linked to assets or liabilities
  • The business must immediately recognize any excess assets obtained in the acquisition as profits, and any excess liabilities as losses

Before the December 2017 amendment, a business linked to another company via a joint operation agreement was not required to remeasure its interest after acquiring the business or a stake in it. The amendment changes that, forcing the acquiring business to apply the IFRS 3 procedures listed above to the new business combination even if a previous joint operation agreement existed.

You can help your clients remain in compliance by reviewing this section of IFRS with them and making sure they understand what the amendment means and how it affects their reporting requirements.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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