IFRS 3 – Business Combinations, Scope and Disclosure Requirements

Overview

IFRS 3 Business Combinations describes how an acquirer accounts for the purchase of control of a business (e.g. an acquisition or merger).

These business combinations are accounted for using the ‘acquisition method,’ which usually requires the purchase of assets and the assumption of liabilities to be valued at their fair values at the acquisition date.

In January 2008, a new version of IFRS 3 was released. It applies to business combinations that occur in an entity’s first year period commencing on or after 1 July 2009.

Background

IFRS 3 (2008) aims to improve the relevance, trustworthiness, and comparability of information concerning business combinations (such as acquisitions and mergers) and their impacts. It establishes the rules for recognising and measuring acquired assets and liabilities, determining goodwill, and making required disclosures.

Scope

IFRS 3 must be used to account for business combinations, however, it does not apply to the following:

Disclosure Requirements

Disclosure of information about current business combinations

An acquirer is required to provide information that enables users of its financial statements to assess the nature and financial impact of a business combination that happens during the current reporting period or after the period ends but before the financial statements are authorised for release.

Among the disclosures required to meet the foregoing objective are the following: [IFRS 3.B64-B66]

Disclosure of information about adjustments of past business combinations

An acquirer is required to provide information that enables users of its financial statements to assess the financial effects of adjustments recognised in the current reporting period for business combinations that occurred during the period or earlier reporting periods.

Among the disclosures required to meet the foregoing objective are the following:

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