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The IASB announced the completion of its Post-implementation Review of IFRS 3 Business Combinations.
The IASB conducts Post-implementation Reviews (PIR) of its new Standards and major amendments two years after they become effective. The purpose of the review is to consider whether the new Standard is functioning as anticipated, has achieved its objectives and has improved financial reporting. Any issues identified by the review that require further action are subject to the normal processes and criteria for being added to the IASB’s agenda.
The scope of this review covered the whole Business Combinations project, including resulting consequential amendments to other Standards, such as IAS 36 Impairment of Assets.
The IASB based its review on information gathered from three main sources: a review of academic literature and other reports, feedback received from investors and other users of financial statements, and feedback received from preparers, auditors and regulators. Over 60 outreach meetings were organised with stakeholders around the world.
The review of academic literature provides evidence that generally supports the business combinations accounting requirements of IFRS 3 and related Standards, particularly in relation to the usefulness of reported goodwill, other intangible assets and goodwill impairment. However, investors expressed mixed views on aspects of the current accounting for goodwill, with some preferring a return to periodic amortisation of goodwill.
Many preparers, auditors and regulators identified implementation challenges in the requirements, in particular applying the definition of a business, measuring the fair value of contingent consideration, contingent liabilities and intangible assets, and testing goodwill for impairment on an annual basis.
Taking into account all of the evidence collected through this post-implementation review, in February 2015, the IASB added two projects to its research agenda to explore further the key findings. These projects will focus on the following issues:
(a) the effectiveness and complexity of testing goodwill for impairment;
(b) the subsequent accounting for goodwill;
(c) challenges in applying the definition of a business; and
(d) identification and fair value measurement of intangible assets such as customer relationships and brand names.