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IFRS 3 - Post-implementation Review


In May 2013, The Financial Accounting Foundation (FAS) published its post implementation review of the US Standard on Business Combination Accounting, FASB Statement No. 141 (2007).

In July 2013, the IASB commenced work on the Post-Implementation Review ('PiR') of IFRS 3 Business Combinations.

IFRS 3 sets out how an entity should account for the acquisition of another entity. The Standard was developed in two stages: the first in 2004 and the second in 2008. In January 2008, the IASB issued a revised version of IFRS 3 and an amended version of IAS 27 Consolidated and Separate Financial Statements . The new requirements came into effect on 1 July 2009.

The IASB has confirmed that the PiR of IFRS 3 will look at the changes introduced in both stages, including changes to the presentation of consolidated financial statements that were made at the same time. The review will consist of two phases.

During Phase I the IASB will undertake targeted outreach to identify areas in which implementation problems or unexpected costs with IFRS 3 were encountered. It will also review academic and other studies about the application of the Standard. The areas identified during this phase will be included in a Request for Information (Rfi), which will be published for public comment and which will lead to Phase II of the review.

During the second phase of the review, the IASB will undertake extensive outreach and analyse the public comments received in response to the Rfi to learn about experience in applying the Standard and the experience of investors and others in using the results it produces.

EFRAG gathered evidence from constituents across Europe to prepare its submission to the IASB's Request for Information. On 24 June 2014 EFRAG and the European Federation of Financial Analysts Societies (EFFAS) published a feedback statement on input received during outreach activities conducted with users on business combination. Additionally, on the same date, EFRAG issued two feedback statements that summarises the views expressed by European constituents and users of financial statements during the outreach activities organised jointly with European National Standard Setters on the Post-implementation Review of IFRS 3 Business Combinations.

On 24 June 2014, EFRAG submitted its response to IASB's Request for Information. In summary, the evidence received indicates that many preparers believe that, from a cost-benefit perspective, the Standards have not worked as intended in respect to all the issues that they set out to address. Although generally acknowledging the conceptual merits of the acquisition accounting model in IFRS, most preparers expressed significant concerns regarding the level of effort required and costs incurred to meet its requirements. We learned that users tend to focus primarily on the "entirety" of what had been acquired for the consideration paid, rather than on the individual assets acquired and liabilities assumed. Users notably request more transparency and substance in the information disclosed on explaining the reason for undertaking the business combination, expected synergies, determination of the fair values and structure (including consideration package) of the acquisition deals.  

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