The staff introduced the first issues relating to IFRS 3 Business Combinations (2008) by noting that the IFRIC has received requests to clarify the treatment of acquisition-related costs that the acquirer incurred before the application of IFRS 3 (2008) that relate to a business combination that is accounted for according to the revised standard. Some constituents believe that IFRS 3 (2008) is not clear on whether those acquisition-related costs should be capitalised or expensed, and asked the IFRIC to clarify the transition requirements.

The staff noted that a number of views have developed in practice. These were outlined in the staff paper as follows:

• View A: The acquisition-related costs should be expensed. Supporters of View A argue that IFRS 3 (2008) is applicable because the acquisition-related costs were incurred in respect to a business combination for which the acquisition date falls after the effective date of the revised standard.
• View B1: The acquisition-related costs incurred in the reporting periods before adoption of the revised standard should be capitalised and those incurred after the revised standard is adopted should be expensed. Therefore, supporters of View B1 would first apply the requirements of IFRS 3 (2004) and then upon adoption of IFRS 3 (2008) apply those requirements.
• View B2: The acquisition-related costs incurred in the reporting periods before adoption of the revised standard should be capitalised. Upon adoption of the new standard, acquisition-related costs should be expensed retrospectively and comparative periods are restated. Supporters of View B2 argue that the adoption of IFRS 3 (2008) is a change in accounting principle and that therefore the requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors should be applied.
• View B3: The acquisition-related costs incurred in the reporting periods before adoption of the revised standard should be capitalised. However, upon adoption of IFRS 3 (2008), the acquirer adjusts the opening balance of retained earnings without restatement of the comparative periods.

The staff believe that the treatment of acquisition-related costs that (a) relate to a business combination that is accounted for in accordance with IFRS 3 (2008) and (b) the acquirer incurred before adoption of the revised standard can be determined with sufficient clarity from the withdrawal of IFRS 3 (2004) and the explanations in IFRS 3 (2008). They therefore recommended that the IFRIC does not add the issue to its agenda.

One IFRIC member stated that this issue had been addressed in the US in relation to SFAS 141R, where it was concluded that View A, B2 and B4 (not included within the IFRIC staff paper – this view is to capitalise and then expense in the first period of adoption through profit or loss) would all be acceptable answers.

A number of IFRIC members thought that View A would not be in compliance with IFRS 3 (2004) at the end of the reporting period, and would therefore be unhappy with saying that View A is the only method of accounting for such costs (as is effectively being recommended by the staff). Another IFRIC member added that most US companies decided to expense their acquisition-related costs.

The IFRIC agreed not to add the issue to the agenda. However, the proposed wording of the agenda decision would be amended to say that there are multiple ways of accounting for such acquisition-related costs. Entities would need to disclose how they had accounted for such costs if material. The IFRIC asked the staff to rewrite the agenda decision accordingly.