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Deloitte supports the introduction of a ‘concentration test’ as an effective means of excluding from the scope of business combination accounting a population of transactions (in, for example, the real estate, pharmaceutical and extractives industries) that are driven primarily by the acquisition of an asset but that, based on the current guidance in IFRS 3, sometimes fall into the definition of business combinations.
However, to be operational Deloitte believes that this test needs to be refined, specifically in applying the idea of ‘similar identifiable assets’ as Deloitte believes that a purchase of a group of assets that differ in form but whose use and value is inextricably linked should be captured by the ‘concentration test’.
More broadly, most of the pressure on determining whether an acquisition involves a business is due to the differences in accounting for acquisitions of assets and businesses. Hence, Deloitte recommends that the Board also seek to minimise or eliminate the accounting differences between business combinations and asset purchases (for example, the differing treatment of deferred tax and transaction costs and the currently unresolved question of accounting for contingent consideration for an asset purchase).
On the proposed amendments to IFRS 3 and IFRS 11 on obtaining control, or joint control, of a joint operation that constitutes a business, Deloitte agrees with the specific amendments proposed but recommends that the issue of changes in stake be considered more broadly.