Latest amendments

Some of the significant amendments brought into IFRS 3

Acquisition costs

Costs of issuing debt or equity instruments are accounted for under IAS 39. All other costs associated with the acquisition must be expensed, including reimbursements to the acquiree for bearing some of the acquisition costs. Examples of costs to be expensed include finder's fees; and general administrative costs, including the costs of maintaining an internal acquisitions departmet.

Contingent consideration

If the amount of contingent consideration changes as a result of a post-acquisition event (such as meeting an earnings target), accounting for the change in consideration depends on whether the additional consideration is an equity instrument or cash or other assets paid or owned. If it is equity, the original amount is not re-measured. If the additional consideration is cash or other assets paid or owed, the chnaged amount is recognized in profit or loss. If the amount of consideration changes because of new information about the fair value of the amount of consideration at acquisition date (rather than because of a post-acquisition event) then retrospective restatement is required.

Goodwill and non-controlling interest

An option is added to IFRA 3 to permit an entity to recognize 100% of the goodwill of the acquired entity, not just the acquiring entity's portion of the goodwill, with the increased amount of goodwill also increasing the non-controlling interest (new term for "minority interest") in the net assets of the acquired entity. This is known as the "full goodwill method". Such non-controlling interest in reported as part of consolidated equity. The "full goodwill" option may be elected on a transaction-by-transaction basis.

Pre-existing relationships and reacquired rights

If the acquirer and acquiree were parties to a pre-existing relationship (for instance, the acquirer had granted the acquiree a right to use its intellectual property), this must be accounted for separately from the business combination. In most cases, this will lead to the recognition of a gain or loss for the amount of the consideration transferred to the vendor, which effectively represents a "settlement" of the pre-existing relationship. The amount of the gain or loss is measured as follows:

• For pre-existing non-contractual relationships (for example, a lawsuit): by reference to fair value
• For pre-existing contractual relationships: at the lesser of (a) the favourable / unfavourable contract position and (b) any stated settlement provisions in the contract available to the counterparty to whom the contract is unfavourable.

However, where the transaction effectively represents a re-acquired right, an intangible asset is recognized and measured on the basis of the remaining contractual term of the related contract excluding any renewals. The asset is then subsequently amortised over the remaining contractual term, again excluding any renewals.

Intangible assets

Must always be recognized and measured. There is no "reliable measurement" exception.

Step acquisition

Prior to sontrol being obtained, the investment is accounted for under IAS 28, IAS 31 or IAS 39 as appropriate. On the date that control is obtained, the fair values of the acquired entity's assets and liabilities, including goodwill, are measured (with the option to measure full goodwill or only the acquirer's percentage of goodwill). Any resulting adjustments to previously recognized asstes and liabilities are recognized in profit or loss. Thus, attaining control triggers re-measurement.

Scope changes

The revised standard must generally be applied on a prospective basis, with some exceptions. The prospective application will impact post-transition changes in ownership interests in subsidiaries and deferred taxes, but will not impact accounting for contingent consideration related to business combinations with an acquisition date prior to the date of transition.