IFRS business combinations standard review reveals need for further research

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.