IFRS business combinations standard review reveals need for further research

By Ken Tysiac

A post-implementation review released Wednesday generally supported the accounting requirements in IFRS 3, Business Combinations, but identified areas for further research, including accounting for goodwill.

In the review, the International Accounting Standards Board (IASB) studied academic literature and other reports and received feedback from financial statement users, preparers, auditors, and regulators. The review covered the whole business combinations project, including consequential amendments to other standards, such as IAS 36, Impairment of Assets.

As a result of the evidence collected in the post-implementation review, the IASB in February added two projects to its research agenda to explore:

  • The effectiveness and complexity of testing goodwill for impairment.
  • The subsequent accounting for goodwill.
  • Challenges in applying the definition of a business.
  • Identification and fair value measurement of intangible assets such as customer relationships and brand names.

According to the review, investors expressed mixed views on aspects of the current accounting for goodwill, with some preferring a return to periodic amortization of goodwill.

Many preparers, auditors, and regulators reported challenges implementing the standard. These challenges included 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.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.

SPONSORED REPORT

How the election may affect taxation of business income

This report summarizes recent proposals to reform the U.S. business income tax system and considers the path to enactment of any such legislation.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

Did you follow 2016’s biggest accounting news?

CPAs will remember 2016 as a year of new standards and new faces. How well did you follow the biggest accounting events? The 7 questions in this quiz will help you find out