The IASB issued a Request for Information (RFI) in January 2014 seeking comments from stakeholders to identify whether IFRS 3 'Business Combinations' provides information that is useful to users of financial statements; whether there are areas of IFRS 3 that are difficult to implement and may prevent the consistent implementation of the standard; and whether unexpected costs have arisen in connection with applying or enforcing the standard.

The ICAEW’s response contains many consistent comments with those raised by the Financial Reporting Council (FRC) and the Association of Chartered Certified Accountants (ACCA).

The key responses from the ICAEW are:

• That the definition of a business needs clarifying.  The ICAEW comments that the current definition works well in straightforward cases but “in some cases the distinction between what is and isn’t a business is unclear”.  It proposes that the IASB considers expanding guidance in this area.  Although not advocating a strict rules-based approach, the ICAEW feel that “more guidance is needed to help draw a clearer dividing line between the two types of transaction”.
• That the costs of separately recognising some intangibles outweigh the benefits.  The ICAEW comments that as the standard requires the acquirer to recognise separately from goodwill the identifiable intangible assets acquired in a business combination, it means that certain assets acquired such as customer relationships, customer lists and brands need to be separately recognised and measured at fair value.  The ICAEW highlights that “businesses will often incur significant costs in order to obtain these fair values” and as “both users and preparers see little, if any advantage in separately recognising such intangibles” it is difficult to argue that the benefits outweigh the costs.  The ICAEW indicate that they agree with the analysis of the FRC which put forward the view that only ‘wasting’ intangibles should be recognised separately from goodwill and ‘organically replaced’ intangibles should be subsumed within goodwill.
• That there are “some problems” with the approach to step acquisitions.
• That “there should be more room for judgement” in determining whether a payment to former owners of the business acquired, which they will forfeit if they leave employment, should be accounted for as part of the cost of the acquisition or as a post-acquisition expense.  Paragraph B55 (a) states that payments under such arrangements should be treated as compensation for post-acquisition services unless the service condition is not substantive.
• That the present disclosure requirements “provide useful information” and that the IASB should “resist the temptation to supplement the current requirements”.  However the ICAEW does request that the IASB “step back and critically assess each of the disclosures required by paragraphs B64-67 with the aim of cutting some of the clutter and refocusing the disclosures on those issues that really matter to the users of the financial statements”.

Click for:

• Full comment letter (link to ICAEW website).
• UK Accounting Plus story on the IASB's RFI on the Post implementation review of IFRS 3.
• UK Accounting Plus story on the FRC comment letter.
• UK Accounting Plus story on the ACCA comment letter.
• UK Accounting Plus story on the Deloitte comment letter.
• UK Accounting Plus project page on the Post-implementation review of IFRS 3.