ASEM IFRS SEMINAR Shanghai, 25-26 March 2006 . Consolidation and Business Combinations Changes to IFRS 3, IAS 27, IAS 37. Reinhard Biebel, EFRAG Deputy Technical Director. www.efrag.org. Consolidation - Combination. Acquisition. Merger. Common Control. Hostile take-over. De facto Control.
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Shanghai, 25-26 March 2006
Consolidation and Business CombinationsChanges to IFRS 3, IAS 27, IAS 37
Reinhard Biebel, EFRAG Deputy Technical Director
De facto Control
Need for consolidated information
SIC 9, 22 & 28
31 March IFRS 3
minor changes 2004-2005
30 June ED IFRS 3
? common control
fresh-start (true mergers)Racing ahead …
Non-controlling interest (NCI)
Business combination [IFRS 3]
The bringing together of separate entities or businesses into one reporting entity
Business combination [ED IFRS 3]
A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses
IASB Statement, IASB Update October 2005:
“IAS 27 contemplates that there are circumstances in which one entity can control another entity without owning more than half the voting power.”
31 Dec 2007
Direct acquisition costs
* Measurement period = reasonable time to obtain information about facts and circumstances existing at acquisition date. Limited to on year.
Reasons for not supporting the EDs:
This does not pre-empt an assessment regarding endorsement
Business Combinations II:Changes to other standards
*The draft doesn’t explain where these debits/credits should be recognised
Disposal when loss of control
Need not involve change in stake
On disposal, any continuing EQ interest to be remeasured to FV
currently, typically roll forward appropriate proportion of carrying amount
Gain/loss to income statement on disposal determined as
FV of Proceeds + FV of any retained investment MINUS
Aggregate of parent’s interest in carrying amount of net assets prior to disposal
FV of remaining 40% (400) applied as cost of initial investment under IAS 28ED IAS 27: disposal of subsidiary
Probability criterion omitted from ED
Result = more asset & liabilities on balance sheet
Move away from concept of ‘best estimate’ to more fair value based ’exit value’
‘Most likely outcome’ not necessarily consistent with the ED’s measurement objective
Take into consideration if sufficiently objective evidence exits
Move away from ’virtually certain’. Recognise if unconditional right to receive.
Recognise only when definition of liability is satisfied. Specific guidance deleted.
New proposals for accounting for Business Combinations are seen critical because of:
IASB indicated to re-deliberate most of new concepts
Final standard in 2007
Will IASB and FASB come up with a practical solution?