The 2008 Revised of IFRS 3 and IAS 27

This article was taken from Deloitte IAS Plus January 2008 edition.

On 10 January 2008, the International Accounting Standards Board (IASB) issued IFRS 3 (revised 2008) Business Combinations and IAS 27 (revised 2008) Consolidated and Separate Financial Statements. The revised Standards are mandatory for business combinations in annual financial statements beginning on or after 1 July 2009, although limited earlier application is permitted. The revisions will result in a high degree of convergence between IFRSs and US GAAP, although some inconsistencies remain, which may result in significantly different financial reporting.

The revised Standards promise significant change, including :

1. A greater emphasis on the use of fair value, potentially increasing the judgment and subjectivity around business combination accounting, and requiring greater input by valuation experts;

2. Focusing on changes in control as a significant economic event – introducing requirements to re-measure interests to fair value at the time when control is achieved or lost, and recognizing directly in equity the impact of all transactions between controlling and non-controlling shareholders not involving a loss of control; and

3. Focusing on what is given to the vendor as consideration, rather than what is spent to achieve the acquisition. Transaction costs, changes in the value of contingent consideration, settlement of pre-existing contracts, share-based payments and similar items will generally be accounted for separately from business combinations and will generally affect profit or loss.

The revised Standards resolve many of the more contentious aspects of business combination accounting by restricting options or allowable methods. As such, they should result in greater consistency in accounting among entities applying IFRSs.

The two revised Standards are mandatory for accounting periods beginning on or after 1 July 2009. In the case of IFRS 3, this will apply to business combinations in those periods. Early adoption is permitted provided that :

1. Both Standards are applied together;

2. The revised IFRS 3 is not applied in an accounting period beginning before 30 June 2007; and

3. Early adoption is disclosed.

Source : Deloitte IAS Plus - January 2008

Another resources :

1.  IASB - The revised IFRS 3 and amended IAS 27

2.  IAS Plus - Summaries of IFRS 3 Business Combinations