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EFRAG submits collected views of European preparers and users on IFRS 3

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

25 Jun 2014

The European Financial Reporting Advisory Group (EFRAG) has responded to the IASB's Request for Information (RFI) regarding IFRS 3 'Business Combinations' by submitting reports of feedback received from various outreach activities and events.

EFRAG groups the feedback in two reports: feedback from preparer outreach activities and feedback from user outreach activities.

Feedback from preparers was mainly gathered through a questionnaire EFRAG and the standard-setters of France, Germany, Italy and the UK issued in February 2014 to invite European companies to share their practical experiences with IFRS 3 Business Combinations (and any consequential amendments to other Standards). The report also includes feedback received during outreach events of the national standard-setters EFRAG staff participated in.

The main practical issues identified by preparers were: 

  • The definition of a business in IFRS 3 was too broad and lacked guidance on what should not be considered a business.
  • Determining the fair value of certain assets and liabilities was highly complex and subjective.
  • Identifying intangible assets was generally highly complex and subjective.
  • Views on the most appropriate accounting treatment for subsequent accounting for goodwill were mixed; but overall the impairment test was considered very difficult to perform.

Feedback from users was mainly gathered through telephone meetings and face-to-face interviews with investors and analysts. The discussions were based on a number of case studies from published IFRS financial statements. The report also reflects feedback received during the joint outreach event on 1 April 2014.

The key messages provided were:

  • The reasons for undertaking the business combination were often described in a “boiler plate” manner and did not sufficiently explain the key drivers of the transaction.
  • There was a need for more transparency on the expected synergies from a business combination.
  • There were mixed views on the non-amortisation of goodwill and indefinite life intangible assets.
  • Adjustments to contingent consideration were considered to be part of the acquisition price.
  • Fair values were considered to be highly subjective, creating a need for additional information on how they were determined.

The letter submitted to the IASB also offers an analysis of the feedback received by topic. The topics chosen were definition of a business, fair value measurement, separate recognition of intangible assets from goodwill, subsequent accounting for goodwill, measurement of contingent consideration, and step acquisitions and loss of control.

The EFRAG website offers the following documents:

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