Post-implementation Review of IFRS 3

The IASB has begun its Post-implementation Review of IFRS 3 ‘Business Combinations’ by publishing a Request for Information on experience with, and the effect of, implementing the Standard.

The Request for Information marks the second of two phases to the Post-implementation Review. Having undertaken targeted outreach in the first phase of the project in order to identify areas that were perceived as problematic, the IASB is now formally seeking feedback on whether:

• IFRS 3 provides information that is useful to users of financial statements
• there are areas of the Standard that represent implementation challenges
• unexpected costs have arisen when preparing, auditing or enforcing the requirements of the Standard.

Particular topics of interest raised in the Request for Information include:

• are there benefits of having separate accounting treatments for business combinations and asset acquisitions?
• what are the most significant valuation challenges resulting from the Standard’s requirements on measuring fair values?
• is it useful to recognise intangible assets separately from goodwill?
• how useful is the information obtained from annually assessing goodwill and intangible assets with indefinite useful lives for impairment?

Depending on the nature of the findings from its review, the IASB may decide to:

• retain IFRS 3 as issued
• continue to monitor the implementation of IFRS 3 (if the results are inconclusive)
• revise IFRS 3 to remedy problems identified by the Post-implementation Review. Such a revision could take the form of an annual improvement or narrow-scope amendment. Alternatively it might take the form of a proposal for a standards-level project to assess the accounting or disclosure requirements.

While we raise some comments on areas where we believe the Standard could be improved, from an overall point of view we believe IFRS 3 provides an appropriate and coherent framework for accounting for business combinations.  We have not identified any fundamental flaws in the Standard's requirements and see no need for a major overhaul.