Amendments proposed to IFRS 3, IAS 27, IAS 37

  • IASB Exposure Draft (original) Image

30 Jun 2005

The IASB and the US Financial Accounting Standards Board (FASB) have each published for public comment exposure drafts containing joint proposals to improve and align the accounting for business combinations.

The proposals include a draft standard that the boards have developed in their first major joint project. The proposed standard would replace the existing requirements of the IASB's IFRS 3 Business Combinations and the FASB's Statement 141 Business Combinations.

The proposals retain the fundamental requirement of IFRS 3 and SFAS 141 to account for all business combinations using the purchase method of accounting, by which one party is always identified as acquiring the other.


Principal changes being proposed to IFRS 3:

  • The acquirer would measure the business acquired at its total fair value and, consequently, recognise the goodwill attributable to any non-controlling interests (previously referred to as minority interests) rather than just the portion attributable to the acquirer. This is sometimes called the 'full goodwill method'. The current version of IFRS 3 requires a business combination to be measured and recognised on the basis of the accumulated cost of the combination.
  • Payments to third parties for consulting, legal, audit, and similar services associated with an acquisition would be recognised generally as expenses when incurred rather than capitalised as part of the business combination. The current version of IFRS 3 requires direct costs of the business combination to be included in the cost of the acquiree.
  • The acquirer would measure and recognise the acquisition-date fair value of the assets acquired and liabilities assumed as part of the business combination, with limited exceptions. Those exceptions are goodwill, non-current assets (or disposal group) classified as held for sale, deferred tax assets or liabilities, and assets or liabilities related to the acquiree's employee benefit plans. Thus there will be fewer exceptions to the principle of measuring assets acquired and liabilities assumed in a business combination at fair value.
  • The acquirer would recognise separately from goodwill an acquiree's intangible assets that meet the definition of an intangible asset in IAS 38 Intangible Assets and are identifiable (that is, they arise from contractual-legal rights or are separable). The current version of IFRS 3 requires the recognition of intangible assets separately from goodwill only if they meet the IAS 38 definition and are reliably measurable.
  • The acquirer would account for a bargain purchase by reducing goodwill until the goodwill related to that business combination is reduced to zero and then by recognising any remaining excess in profit or loss. The current version of IFRS 3 requires the excess of the acquirer's interest in the net fair values of the acquiree's assets and liabilities over cost to be recognised immediately in profit or loss.
  • Acquisitions of additional non-controlling equity interests after the business combination will no longer be accounted for using the acquisition method. Instead, they will be accounted for as transactions with owners.
  • The scope of IFRS 3 would be broadened to include business combinations involving only mutual entities and those achieved by contract alone.
Two additional exposure drafts:
  • The IASB and the FASB also published exposure drafts proposing that non-controlling interests should be classified as equity within the consolidated financial statements and that the acquisition of non-controlling interests should be accounted for as an equity transaction. The IASB's proposals are presented as amendments to IAS 27 Consolidated and Separate Financial Statements.
  • The IASB also has proposed to amend IAS 37 Provisions, Contingent Liabilities and Contingent Assets, to treat items previously described as 'contingent liabilities' more consistently in and outside a business combination.



The IASB invites comments on all of the exposure drafts by 28 October 2005. Click to Download the IASB Press Release (PDF 56k).

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