New EFRAG 'Short Discussion Series' paper on the presentation of reversals of acquisition step-ups

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

11 Sep, 2014

The European Financial Reporting Group (EFRAG) has issued a fourth 'Short Discussion Series (SDS) paper. The series addresses topical and problematic issues with the aim of stimulating debate among European constituents and of helping the IASB to address cross-cutting dilemmas in financial reporting.

The new paper discusses the presentation and disclosure of information on the reversal of step-ups recognised in a business combination. 

IFRS 3 Business Combinations generally requires identifiable assets acquired and liabilities assumed to be measured at their acquisition-date fair value, which may result in upward adjustments to the carrying amounts in the acquiree's financial statements (so-called 'step-ups'). In the paper, EFRAG discusses whether and to what degree information about the impact of a subsequent reversal of the step-ups may be relevant to users and how this information should be presented. The discussion is structured into the following chapters:

  • The case for fair value in IFRS 3
  • Is the an issue with step-ups?
  • Is this only an issue in a business combination?
  • What assets should be considered?
  • Discussion of alternatives:
    • Presenting the impact of the step-ups in a separate line item of the statement of comprehensive income
    • Offsetting the revenue and cost of goods sold for the performance completed by the acquiree until the acquisition date
    • Presenting cost of goods sold based on the acquiree’s carrying amounts in profit or loss and the reversal of the step-ups in other comprehensive income
    • Disclosing sufficient information to enable users to make the adjustment
    • Voluntary provision of information
  • Practical problems

Questions to constituents to guide the discussion are included in the paper as well.

The discussion paper is open for comment until 31 December 2014. Click for press release and the discussion paper on the EFRAG website.

Earlier papers in the series were:

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