04 June 2019

IASB proposes to update Conceptual Framework reference in IFRS 3

The IASB has published for public consultation proposed narrow-scope amendments to IFRS 3 Business Combinations. The amendments would update a reference to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.

IFRS 3 specifies how a company should account for the assets and liabilities it acquires when it obtains control of a business. It refers companies to the IASB’s Conceptual Framework to determine what constitutes an asset or a liability.

IFRS 3 refers to an old version of the Conceptual Framework. The IASB proposes to update IFRS 3 so it refers instead to the latest version, issued in March 2018.

Updating the reference without making any other changes to IFRS 3 could change the accounting requirements for business combinations because the liability definition in the 2018 Conceptual Framework is broader than that in previous versions. Companies would need to record provisions and contingent liabilities when they acquire a business they would not record in other circumstances. To avoid this, the IASB also proposes that for provisions and contingent liabilities, companies refer to IAS 37 Provisions, Contingent Liabilities and Contingent Assets instead of the Conceptual Framework to determine what constitutes a liability.

This change is proposed to stand until the IASB decides whether and how to amend IAS 37 to align it with the 2018 Conceptual Framework.

Comments to be received by 27 September 2019.

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