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IFRS 3 — Definition of a business

Date recorded:

The Committee had originally received a question about whether the acquisition of a single investment property, with lease agreements with multiple tenants over varying periods and associated processes, such as cleaning, maintenance and administrative services such as rent collection, constitutes a business as defined in IFRS 3.

The Committee believed that the difficulty in determining whether something was a business was not limited to the acquisition of investment property; it was a broader issue and should be addressed by the IASB as part of its post-implementation review (PIR) of IFRS 3.

However, it was also believed that it would be useful for the PIR of the Committee were to contribute its own experience to that review. On that basis, a Staff member performed an outreach and analysis of the issue. The result of this research was a paper (93 pages) that was presented to the Committee at the May meeting.

During the outreach activity, the following industry sectors were asked to identify challenges in distinguishing business combinations from asset acquisitions:

  • investment property
  • extractive industries
  • pharmaceuticals
  • banking
  • shipping
  • solar and wind farms.

The large accounting firms were also asked to share their experience.

A few Committee members acknowledged the amount of work and the quality of research which was undertaken by the Staff member. Some Committee members also commented that the findings (practical challenges) in the paper were consistent with their experiences.

The discussion during the meeting was not about the content of the paper; instead it was mainly about the process and how to take it forward so that the Committee would contribute effectively to the IASB’s PIR of IFRS 3.

It was agreed that the paper should be shared and discussed with the IASB in order to identify next steps.

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