in a business combination achieved in stages, 21 4 Recognising and measuring assets acquired and liabilities assumed 22 In addition, IFRS and its interpretation change … Guidance on reverse acquisition accounting is provided in Contents IFRS 3 Business Combinations – Illustrative examples Reverse acquisitions IE1 - IE3Calculating the fair value of the consideration transferred IE4 - IE5Measuring goodwill IE6 Footnote X: Acquisitions Amendments to the Illustrative Examples accompanying IFRS 3 Business Combinations Paragraphs IE73–IE123 and their related headings are added. Reverse acquisition occurs the conclusions that we have reached on many interpretative issues. MFRS 138 is based on IAS 38 Intangible Assets. It is presumed that all assets and liabilities acquired in a business combination satisfy the criterion of probability of inflow/outflow of resources as set out in Framework (IFRS 3.BC126-BC130). IV and V provide illustrative disclosures for the early adoption of Disclosure Initiative (Amendments to IAS 7) and IFRS 9 Financial Instruments, respectively. These examples are based on illustrative examples from the IFRS for SMEs. Not all business combinations take place in one go. IFRS 3 illustrates the calculation of consolidated goodwill at the date of acquisition as: Consideration paid by parent + non-controlling interest - fair value of the subsidiary’s net identifiable assets = consolidated goodwill. Once entered, they are only These illustrative examples accompany the standard and The appendices (a) compare the 2008 versions of IFRS 3 and IAS 27 (2008) with their predecessors, and (b) identify the continuing differences between IFRSs and US GAAP. The objective of these transactions was for the legal acquiree to obtain a market listing status currently available to the legal acquirer without needing to undergo its own initial public offering and all the reporting requirements that an initial public offering typically entails. Defined terms Page 30 B. IFRS 3 Business combinations prescribes accounting and disclosure requirements for the acquiring entity in a business combination scenario.  -  Moreover, IFRS 3 does not specify how a reverse acquisition should be accounted for when the accounting acquiree is not a business. The Committee tentatively decided to issue a rejection notice outlining this view. IFRS 9 Financial Instruments (2014) 159 ... Acquisition of subsidiary 112 34. 12240.3 For example, assume a reverse acquisition between 2 public reporting companies occurs on July 15. Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. IR�l�����n��9�B��1�Hv+����kp����2�f9B��{�_�̴�R�����. reverse acquisition accounting should be applied. IFRS 3 … The HKICPA supported the reasons for revising IFRS PwC − Practical guide to IFRS: Determining what’s a business under IFRS 3 (2008) 2 A business is defined in IFRS 3 (2008) as ‘an integrated set of activities … 15 Sep 2020, 16 Jun 2020 It’s based on actual questions that have arisen in practice around the world and includes illustrative examples and journal entries to elaborate or clarify the practical application of IFRS 2. 12240.3 For example, assume a reverse acquisition between 2 public reporting companies occurs on July 15. The importance of this topic in our environment is highlighted by the relatively increased frequency with which mergers and acquisitions have occurred in the last couple of years. Goodwill is then recognised to the extent the deemed acquisition cost exceeds the fair value of the listed company's identifiable assets and liabilities. The amendments are a response to feedback received from the post-implementation review of IFRS 3 (‘the Standard’). IFRS 3 amendments – Clarifying what is a business 26 October 2018 Amendments provide more guidance on the definition of a business, but complexities remain Highlights − Optional concentration test to get to asset acquisition Accounting considerations shouldn’t drive acquisition decisions, but accounting For CGUs, the impairment loss is allocated to goodwill first, and then to the rest of the assets pro rata on the basis of the carrying amount of each asset (IAS 36.104). The question put to the Committee was whether IFRS 3 should apply, IFRS 2 should apply or wether neither IFRS 3 nor IFRS 2 apply and an accounting policy should be applied by analogy. In doing so, management would apply all the aspects of these IFRSs that are relevant to the transactions analysed. IFRS 3. The Committee considered two requests to provide guidance on how to account for reverse acquisition transactions in which the accounting acquiree is not a business. By using this site you agree to our use of cookies. acquirer (see IFRS 3:6, 3:7 and IFRS 3:B14 to B18) is relevant in a reverse acquisition transaction. The IASB’s Illustrative Examples on implementing IAS 38 are reproduced below for reference. an acquisition or merger). When the legal acquirer is a new (or ‘shell’) entity or … Overview. IFRS 3 also expands the disclosure requirements previously included in IAS 22. 01 Dec 2020 Say, for example, a company may hold 25% of a company, and ... Read moreStep Acquisitions under IFRS 3 These examples also illustrate the tagging of new elements added to the IFRS Taxonomy 2019 as a result of the analysis of common reporting practice on IFRS 13 Fair Value Measurement (see Example 15) and general improvements (see Examples 7, 8 and 17) By virtue of the FRC Act of 2010, almost all entities in Nigeria are expected to be reporting based on IFRS by the end of the year and any acquisitions during this period, whether a direct acquisition or a reverse acquisition is expected to be accounted for using the guidelines provided by IFRS 3. illustrative examples and journal entries to elaborate or clarify the practical application of IFRS 2. The costs of issuing debt or equity are to be accounted for under the rules of IFRS 9®, Financial Instruments and IAS 32® Financial Instruments: Presentation. IFRS 3 (Revised), Business Combinations, will result in significant changes in accounting for business combinations. Insights 2.3.60.10 Paragraph 2.3.60.10 of the 12 th edition 2015/16 of our publication Insights into IFRS . Acquirer in a reverse acquisition (IFRS 3) Sep 2011 Newly formed entities—factors affecting the identification of the acquirer (IFRS 3) At the acquisition date, the acquirer should classify or designate acquired assets and assumed liabilities a… They illustrate aspects of IFRS 17 but are not intended to provide interpretative guidance. In reaching the above recommendation, which was developed considering the specific fact patterns received by the Committee, the staff noted that general guidelines could be developed to state how the existing requirements on business combinations in IFRS 3 and on share-based payments in IFRS 2 would be applied in circumstances in which the accounting acquiree does not meet the definition of a business. 2.1.3. NCI 116 35. IFRS Taxonomy 2019 – Illustrative examples Business Combinations. Most Committee members supported the staff analysis of the issue. The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. IFRS 2 Share based payment, is applied to a reverse acquisition when the accounting acquiree does not constitute a business as defined under IFRS 3. This is common when the transaction involves a CPC because the entity is Neither IFRS 3 nor IFRS 2 apply and an accounting policy should be applied by analogy. This publication outlines the key features of IFRS 3 and provides illustrative examples to assist However, another Committee member believed that the US GAAP application is a primary result of developments in practice as opposed to specific requirements in US GAAP. The acquirer shall recognise the acquisition-date fair value of ... Illustrative disclosures . Appendix B of this document provides illustrative examples of applying the disclosure requirements of IFRS 3 in an efficient and effective manner. However, the carrying amount of an asset after allocation of the impairment loss cannot decrease below its recoverable amount (fair value less cost of disposal) or zero. As a result, the staff recommended that management would look at IFRS 3 because the transaction has many features of a reverse acquisition and IFRS 2 to identify the substance of the fact patterns analysed (based on paragraph 5 of IFRS 2). Accounting for reverse acquisitions have always constituted an interesting topic for accountants both in theory and in practice. IV Example disclosures for entities that early adopt . However, one Committee member expressed concern with issuing a rejection notice given that at least some diversity exists in practice (citing an unsolicited comment letter which has been received by the Committee in advance of this discussion). IFRS 3 Business Combinations outlines the accounting when an acquirer obtains control of a business (e.g.  -  IFRS 3 does not apply to: • the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself • the acquisition of an asset or … IFRS 3 applies to a transaction or other event that meets the definition of a business combination. 1.3.2 Accounting for common control business combinations outside the scope of IFRS 3 17 2 Identify the acquirer 18 2.1 Reverse acquisitions 20 3 When is the acquisition date? Another area of change is contingent consideration, which will be measured at fair value at the acquisition date; generally subsequent changes will be recognised in proit or loss if the contingent consideration is classiied as a liability. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. IFRS 3 provides relevant guidance on the identification of the accounting acquirer and on the measurement of the consideration transferred by the equity instruments granted by the non-public entity, which is not an aspect specifically covered by IFRS 2. January 2008 IFRS 3 Illustrative Examples and US GAAP Comparison ILLUSTRATIVE EXAMPLES AND COMPARISON WITH SFAS IE1 This example illustrates the accounting for a reverse acquisition in which Entity B, the legal subsidiary, acquires Entity A, the entity issuing equity instruments and therefore the legal parent, in a IFRS 3®, Business Combinations was issued in January 2008 as the second phase of a joint project with the Financial Accounting Standards Board (FASB), the US standards setter, and is designed to improve financial reporting and international convergence in this area. 1.3 Is the business combination within the scope of IFRS 3? IFRS 3.10-13: Recognising Particular Assets Acquired and Liabilities Assumed - Customer-related intangible assets 18 2.2.2. As a proportion of the fair value of net assets of the acquiree on the acquisition date IFRS 3 Para 19] Example. MFRS 138 IE i Illustrative Examples on MFRS 138 Intangible Assets These Illustrative Examples accompany, but are not part of, MFRS 138. 4 IFRS 3 (Revised): Impact on earnings –the crucial Q&Afor decision-makers Acquisitions (M&A) represent a core growth strategy for many companies. Illustrating the consequences of recognising a reverse acquisition by applying paragraphs B19–B27 of IFRS 3. IFRS 3 Business Combinations Illustrative examples These examples accompany, but are not part of, IFRS 3. A reverse acquisition arises in a business combination where the ‘acquired entity’ (or its owners) controls the combined entity and is identified as the acquirer under IFRS 3. He noted that he was not troubled by a different answer between IFRSs and US GAAP in specific application even with largely converged standards as he acknowledged that other pieces of literature come into play in applying both IFRSs and US GAAP, and therefore, accepted that differences in practice may result. On the acquisition date, the aggregate value of Baby’s identifiable assets and liabilities in line with IFRS 3 is CU 110 000. This usually involves the listed company issuing its shares to the private company shareholders in exchange for their shares. 29 Apr 2020. whether a direct acquisition or a reverse acquisition is expected to be accounted for using the guidelines provided by IFRS 3. Please read, IAS 16 and IAS 38 — Contingent pricing of property, plant and equipment and intangible assets, IAS 19 — Accounting for contribution based promises, IAS 41 and IFRS 13 — Valuation of biological assets using a residual method, IAS 19 — Measurement of the net DBO for post-employment benefit plans with employee contributions, IAS 27 — Non-cash acquisition of non-controlling interest, IAS 39 — Accounting for different aspects of restructuring Greek Government Bonds: Review of tentative agenda decisions published in May 2012 IFRIC Update, IAS 19 — Accounting for contribution based promises: Review of tentative agenda decisions published in May 2012 IFRIC Update, IAS 16, IAS 38 and IAS 17 — Purchase of right to use land, IAS 28 - Impairment of investments in associates in separate financial statements, IAS 40 - Accounting for telecommunication tower, IAS 39 - Presentation of income and expense, IFRS 3 - Accounting for reverse acquisition transactions where the acquire is not a business, Administrative matters — IFRS Interpretations Committee work in progress, IFRS Interpretations Committee meeting — 18–19 September 2012, We comment on the IASB’s discussion paper on goodwill, IFRS Interpretations Committee holds December 2020 meeting, EFRAG outreach event on business combinations and the investor view – summary report, IASB publishes discussion paper on business combinations under common control, Pre-meeting summaries for the December 2020 IFRS Interpretations Committee meeting, We comment on the tentative agenda decision on sale and leaseback in a corporate wrapper, Deloitte comment letter on discussion paper on goodwill, IFRS in Focus — IASB publishes Discussion Paper on 'Business Combinations under Common Control', Deloitte comment letter on the tentative agenda decision on sale and leaseback in a corporate wrapper, EFRAG endorsement status report 23 October 2020, IFRS Interpretations Committee meeting — 1-2 December 2020, IFRS Interpretations Committee meeting — 15 September 2020, IFRS Interpretations Committee meeting — 16 June 2020, IFRS Interpretations Committee meeting — 29 April 2020, IFRIC 11 — IFRS 2: Group and Treasury Share Transactions, SIC-9 — Business Combinations – Classification either as Acquisitions or Unitings of Interests, SIC-22 — Business Combinations – Subsequent Adjustment of Fair Values and Goodwill Initially Reported. IE1 This example illustrates the accounti ng for a reverse acquisition in which 1 0 obj<> endobj 2 0 obj<>/Font<>/ProcSet[/PDF/Text]/ExtGState<>>> endobj 3 0 obj<>stream These examples represent how some of the disclosures required by IFRS 3 (in IE72) for acquisition of a company might be tagged using both block tagging and detailed tagging. the amount of any non-controlling interest in the acquiree measured in accordance with IFRS 3 and iii. Such business combinations are accounted for using the 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. Against this background we hope that this issue of First Impressions: IFRS 3 and FAS 141R Business Introduction IE1 These examples Other information 119. Issue 137 / October 2018 IFRS Developments What you need to know • The IASB issued narrow-scope amendments to IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not. Additionally, one Committee member noted that the staff’s analysis may lead to divergence with US GAAP/US Securities and Exchange Commission (SEC) guidance even though the two underlying IFRSs (IFRS 3 and IFRS 2) are largely converged with that of equivalent US GAAP standards. Non-Controlling interest in the acquiree before the date of acquisition on this issue browsing the,... But are not intended to provide interpretative guidance ), business combinations will. Not all business combinations for example, assume a reverse acquisition should be applied by analogy in left... 138 is based on illustrative examples of applying the disclosure requirements of IFRS 3 ( 2008 ) and 141R. 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