The FRC's review looked at a sample of 20 companies across various industries.  While the FRC was broadly satisfied with the quality of reporting of business combinations, it observed several areas where improvements can be made.  Specifically the FRC expects companies to:   

• Clearly explain the impact of the business combination on the group’s strategy, resources, operations, and performance. Explanations should be clear and concise, highlighting the reasons for any significant changes (for example, on liquidity and funding). Where alternative performance measures (APM’s) are used to explain the impact of the combination, the FRC expects companies to apply the recommendations from its recent APM thematic review.  
• Provide a comprehensive understanding of the effects of the business combination supported by consistent information throughout the annual report, allowing the reader to follow ‘the full story’.
• Avoid boilerplate disclosures, making sure explanations reflect the specific circumstances, for example when describing the factors giving rise to goodwill and explanations of contingent consideration arrangements. Better disclosures explain the valuation techniques used to value acquired assets and liabilities and the key assumptions used.
• Provide meaningful sensitivities and/or ranges of reasonably possible outcomes for significant estimates made in accounting for the business combination.
• Disclose clearly the potential variability in future amounts payable for contingent consideration. Better disclosures provide specific details of the target measures on which the contingency is based and the time period over which they are to be assessed.     
• Make sure business combination related cash flows are correctly classified, with cash flows for acquisition-related costs presented within operating cash flows and not investing in the consolidated accounts. Similarly cash flows relating to payments linked to continuing employment should be reported within operating cash flows.
• Carefully consider what deferred tax balances should be recognised as a result of the combination.
• Explain how transactions not accounted for as part of the business combination have been treated and the line item(s) in the financial statements in which they have been recognised. When contingent payments are linked to continuing employment of personnel they should be excluded from consideration for the business combination and accounted for as post acquisition employment expense.

The FRC report includes examples of better practice disclosures and a case study (in the appendix) to encourage improvement in the general quality of company disclosures.

A press release and the full thematic review are available on the FRC website.