ACCA calls for rethink on IFRS 3 reporting for mergers

ACCA wants the International Accounting Standards Board (IASB) to reconsider some fundamental aspects of the global standard for the acquisition of businesses, IFRS 3, saying more work needs to be done on issues including accounting for goodwill and for intangibles.

The institute’s comments were made in response to IASB’s Post-implementation Review (PiR) into IFRS 3, Business Combinations, which was significantly revised with effect from 2009. 

Richard Martin, ACCA head of corporate reporting, said: ‘Though we support in principle the impairment-only approach to the accounting for goodwill there are arguments for an amortisation approach.

‘If the impairment-only model is retained then some reconsideration of IAS 36 [Impairment of Assets] may be needed, of the disclosure requirements but also of whether the subjective elements of the standard are allowing impairments to be avoided.’

ACCA also says the IASB needs to revisit the cost/benefit assessment of whether certain intangible assets should continue to be recognised separately from goodwill.

Martin said: ‘Intangibles such as brands and customer relationships may be difficult to separate from the business and the goodwill attached to that. They are often not considered separately in the commercial decision-making in the acquisition and are hard to value as a result.

‘It is not clear that the separate recognition and valuation yields are useful information to readers of the accounts. Some of these issues may be reflected in the disclosure shortcomings.’

Marti noted that while ACCA supports the separate treatment of business combinations from asset purchases, ‘there are difficult borderline cases where the differences in treatment may be influencing the categorisation’.

‘IASB should review such differences, for example transaction costs and deferred tax, and see whether they are merited in the light of the pressure that they put on the categorisation of transactions and the consequent risk of manipulation of financial statements,’ Martin said.  

Included in ACCA’s response is a research paper, Worldwide applications of IFRS 3, IAS 38 and IAS 36, related disclosures and determinants of non-compliance, which looks at both IFRS 3 and two related standards on impairments and intangible assets.

The study, by the University of Stirling and ESSEC Business School in Paris, looked at over 500 sets of IFRS-based financial statements from multinationals. ACCA says the research identified numerous examples of apparently poor compliance with the disclosure requirements of the standards. These included elements of the accounting treatment of business combinations and the nature and accounting treatment of the intangible assets other than goodwill, which ACCA says are an increasingly significant component of many balance sheets.

The Financial Reporting Council has also called for improvements to the standard, including requiring the separate recognition and measurement of fewer intangible assets; reducing complexity and the use of judgmental valuations in areas such as stepped acquisitions, the treatment of non-controlling interests and partial disposals; and moving to a model of disclosures that concentrates on high level objectives rather than specifying a list of detailed requirements.

The FRC’s response is available at

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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