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IASB addresses definition of a business and accounting for previously held interests

28 Jun 2016

In a combination of two of its current implementation projects, the IASB has today published 'Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11)'. Comments on the exposure draft are requested by 31 October 2016.



The post-implementation review of IFRS 3 Business Combinations revealed that entities have difficulties when determining whether they have acquired a business or a group of assets. As the accounting requirements for goodwill, acquisition costs and deferred tax differ on the acquisition of a business and on the acquisition of a group of assets, the IASB decided to issue narrow scope amendments aimed at resolving the difficulties that arise when an entity is determining whether it has acquired a business or a group of assets.

At the same time, the IFRS Interpretations Committee received and discussed several issues around transactions involving previously held interests in order to determine whether or not previously held interests should be remeasured. The Interpretations Committee recommended to the IASB to make certain amendments and the IASB agreed to follow the Committee's recommendation, provided the amendments were grouped with and conditional on other amendments relating to the definition of a business.

As a consequence, the IASB now issues one exposure draft addressing the definition of a business as well as the accounting for previously held interests in the assets and liabilities of a joint operation in transactions in which an investor obtains control or joint control of a joint operation that meets the definition of a business.


Suggested changes

The amendments proposed in ED/2016/1 Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11) are:

Definition of a business (changes to the implementation guidance of IFRS 3 only)

  • A business consists of inputs and processes applied to those inputs that have the ability to contribute to creating outputs, while a business need not include all of the inputs or processes that the seller used in operating that business and need not have an output. However, if there is no output, the set is a business only if it includes an organised workforce with the necessary skills, knowledge, or experience to perform an acquired substantive process that is critical to the ability to develop or convert another acquired input into output.
  • If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, then the set of activities and assets is not a business.
  • Tangible and intangible assets, different classes of tangible assets, identifiable intangible assets in different intangible asset classes, financial assets and non-financial assets, and different classes of financial assets shall not be combined into a single asset or considered a group of similar assets.

Accounting for previously held interests (changes to IFRS 3 and the implementation guidance of IFRS 11)

  • Acquisition of control over a joint operation that meets the definition of a business is a significant economic event that warrants remeasurement of previously held interests in the assets and liabilities of the joint operation at fair value at the time an investor obtains control of the joint operation.
  • Acquisition of joint control over a joint operation that meets the definition of a business is not an event that warrants remeasurement of previously held interests in the assets and liabilities of the joint operation at the time an investor obtains joint control over the joint operation.


Interaction with the FASB

The exposure draft notes that IFRS 3 is the result of a joint project between the IASB and the FASB and the business combinations requirements under IFRSs and US GAAP are substantially converged. However, even though the FASB (that had received similar feedback) and the IASB have worked together to respond to problems with the definition of a business, the IASB decided to expose amendments to the application guidance of IFRS 3 that are different from the wording exposed by the FASB in November 2015 although the results are expected to be substantially the same.


Effective date and transition requirements

The ED proposes that the amendments would be applied to business combinations for which the acquisition date is on or after the effective date. Earlier application would be permitted.


Additional information

Please click for:

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IASB issues 'Investor Perspectives' on disclosure effectiveness

27 Jun 2016

The IASB has issued the latest issue of "Investor Perspectives." In this edition, IASB board member Pat Finnegan discusses improving disclosure effectiveness.

This issue of Investor Perspective features:

  • An examination of capitalisation tables;
  • A closer look at the IASB's projects on Conceptual Framework and financial instruments with characteristics of equity;
  • A solicitation for ideas on "more efficient and effective way for investors and lenders to obtain a comprehensive picture of the rights and obligations created by a company’s liability and equity claims"; and
  • Recent resources related to disclosure effectiveness.

For more information, see the June 2016 edition of the Investor Perspectives newsletter on the IASB’s website.

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IFRS 9 endorsement in the EU takes next hurdle

27 Jun 2016

On 27 June 2016, the Accounting Regulatory Committee (ARC) voted in favour of endorsing IFRS 9 'Financial Instruments' for use in the European Union. Final endorsement is currently expected in the fourth quarter of 2016.

The development is reflected in an updated EFRAG endorsement status report.

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6th ANC Symposium on Accounting Research

27 Jun 2016

On 12 December 2016, the Autorité des Normes Comptables (ANC), the French standard setter, will host its 6th Symposium on Accounting Research in Paris. The general theme will be "Accounting and performance".

The symposium on accounting research will gather together academics, international standard-setting representatives, finance and accounting directors, chartered accountants and external auditors around series of round tables on 'Accounting and Performance' and measurement issues. Debates will focus on for whom should performance be designed, which time horizon to take into account, the relevance of the information to publish and its link with the European public good. Participation in the symposium is free of charge, however, prior registration is required.IAS Plus observers will be present at the symposium.

Please click for the formal invitation and registration on the ANC website.

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IASB Chairman speaks on the IASB's reactions to the global financial crisis

27 Jun 2016

At an event celebrating the 25th birthday of the Portuguese Securities Market Commission CMVM, IASB Chairman spoke on a variety of topics including developments at the IASB after the onset of the global financial crisis and IFRS 9.

Sketching progress that has been achieved in the regulatory field after the global financial crisis, Mr Hoogervorst first pointed at the increased use of IFRSs around the world. This, he stated, has brought "tremendous benefits to the global economy in terms of transparency, accountability and efficiency". In terms of standard-setting he then mentioned the completion of IFRS 15 and IFRS 16 and the near completion of the new standard on insurance contracts. The completion of IFRS 9 he called the IASB's main response to the financial crisis.

Looking more deeply into IFRS 9 Financial Instruments, Mr Hoogervorst explained the new expected loss model that means that full lifetime losses will have to be recognised as soon as a significant increase in credit risk has taken place. He noted that implementation of the expected loss model will require considerable effort, particularly in jurisdictions where the banking system is suspected of harbouring a lot of problem loans. In these jurisdictions proper implementation of IFRS 9 could be a huge challenge for auditors, market and prudential regulators. He warned and encouraged his audience:

Expect to hear a lot of complaints, but stand resolute in your determination to do the right thing!

After discussing accounting, Mr Hoogervorst strayed beyond the remit of the IASB and offered his thoughts on audit, bank capital, leverage in the global economy, and unchartered waters in general.

Please click to access the full text of Mr Hoogervorst's speech on the IASB website.

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EU referendum in the UK

24 Jun 2016

In the EU referendum in the UK yesterday, which saw a turnout of 71.8%, 51.9% of the voters made clear that they see the UK’s interests best-served by leaving the European Union.

Deloitte UK offers a website dedicated to the EU referendum and its result offering insight papers, perspectives and access to webinars on what this change can mean.

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IASB updates work plan

24 Jun 2016

Following its June 2016 meeting, the IASB has updated its work plan. As mentioned before, directly tracing the Board's progress on the individual projects has become impossible since the change of the work plan format in July 2015, unless the Board makes definite progress or has to make larger corrections. Of these, only a few can be identified since the previous work plan. The work plan also indicates that EDs on the definition of a business and on the remeasurement of previously held interests are to be expected next week.

Changes to the work plan include:

Major projects

  • No changes made to major projects.

Im­ple­men­ta­tion projects

In addition, the work plan makes clear that exposure drafts on the definition of a business and on the remeasurement of previously held interests are to be expected next week since the work plan still states that these will come out in June (which ends next week).

Finally, the IASB has updated the details of the primary financial statements research project indicating that initial research will focus on:

  • the structure and content of the statement(s) of financial performance;
  • the potential demand for changes to the statement of cash flows and the statement of financial position; and
  • the implications of digital reporting for the structure and content of the primary financial statements.

The revised IASB work plan is available on the IASB's website.

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IFRS Foundation updates its Due Process Handbook for IFRS Taxonomy

23 Jun 2016

The IFRS Foundation trustees have issued an updated Due Process Handbook which incorporates the due process for developing and maintaining the IFRS Taxonomy.

Specifically, the changes to the IFRS Taxonomy due process are:

  • “[T]he Board will review and approve IFRS Taxonomy content where it reflects new or amended IFRS Standards.”
  • “[A] newly established IFRS Taxonomy Review Panel of three-to-five Board members will review the IFRS Taxonomy common practice content.”
  • “[T]he drafting and approval of each Proposed IFRS Taxonomy Update will take place at the same time that the related IFRS Standard is finalized.”
  • “[T]he role of the IFRS Taxonomy Consultative Group will be formalised within the due process.”

The updated Due Process Handbook also incorporates an amendment approved by the DPOC to extend the interval between the Board’s Agenda Consultations from three-to-five years, a change proposed by the Board as part of its 2015 Agenda Consultation.

For more information, see the press release, feedback statement, and Due Process Handbook page on the IASB’s Web site.

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EFAA publishes report on implementation of the EU Accounting Directive

23 Jun 2016

The European Federation of Accountants and Auditors for SMEs (EFAA) has published a report on the implementation of the European Accounting Directive.

The Directive entered into force on 20 July 2013 and was required to be implemented into the law of EU member states by 20 July 2015. It was aimed at reducing unnecessary and disproportionate administrative costs on small companies by simplifying the preparation of financial statements and reducing the amount of information required by small companies in the notes to financial statements. The Directive contains a significant number of member state options so that implementation can differ between member states.

The EFAA report focuses on whether the implementation has resulted in the creation of a harmonised European accounting framework. It reflects the results of an EFAA survey of its members in eight EU member states.

The report identifies some areas in which the countries surveyed have implemented the Directive in a similar way, in particular through the creation of a reduced disclosure regime for micro-entities. However, the main findings of the report point to the notable differences between member states’ implementation of the Directive. The report also highlights the lessened transparency of financial information about SMEs that is now available to the public as a result of reduced disclosure following implementation of the Directive.

Please click here to access the full report The New Accounting Directive: A Harmonised European Accounting Framework? on the EFAA website.

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June 2016 IASB meeting notes posted

22 Jun 2016

The IASB met at its offices in London on 20 and 22 June 2016. We have posted the Deloitte observer notes from all of the sessions.

Please click through for direct access to the notes:

Monday, 20 June 2016

Wednesday, 22 June 2016

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

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