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DTTL comments on proposed amendments to IFRS 3 and IFRS 11

Published on: Oct 31, 2016

Deloitte’s IFRS Global Office has responded to the IASB's exposure draft Definition of a Business and Accounting for Previously Held Interests (proposed amendments to IFRS 3 and IFRS 11), which was issued by the IASB in June 2016.

We welcome the IASB’s initiative in addressing an issue (the application of the definition of a business) which, as evidenced by responses to the post-implementation review of IFRS 3, is currently a distinction that is difficult to apply in practice, inevitably leading to a degree of diversity in practice.

We support the introduction of a ‘concentration test’ as an effective means of excluding from the scope of business combination accounting a population of transactions (in, for example, the real estate, pharmaceutical and extractives industries) that are driven primarily by the acquisition of an asset but that, based on the current guidance in IFRS 3, sometimes fall into the definition of business combinations. However, to be operational we believe that this test needs to be refined, specifically in applying the idea of ‘similar identifiable assets’ as we believe that a purchase of a group of assets that differ in form but whose use and value is inextricably linked should be captured by the ‘concentration test’.

More broadly, most of the pressure on determining whether an acquisition involves a business is due to the differences in accounting for acquisitions of assets and businesses. Hence, we recommend that the Board also seek to minimise or eliminate the accounting differences between business combinations and asset purchases (for example, the differing treatment of deferred tax and transaction costs and the currently unresolved question of accounting for contingent consideration for an asset purchase).

On the proposed amendments to IFRS 3 and IFRS 11 on obtaining control, or joint control, of a joint operation that constitutes a business, we agree with the specific amendments proposed but recommend that the issue of changes in stake be considered more broadly.

Full text of the comment letter is available below.

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