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IFRS 3 Business Combinations

IFRS 3 Business Combinations provides guidance on the accounting treatment on the acquisition of a business.

Revised January 2008. Effective 1 July 2009.

Contents

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Financial Reporting Faculty members only

1. IFRS 9 amendment to IFRS 3

Effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted.

IFRS 9 amends IFRS 3 to:

  • Delete reference to IAS 39 classifications of financial instruments.
  • Require that in a business combination achieved in stages, any gain or loss on the re-measurement of a previously held equity interest to fair value is recognised in profit or loss or other comprehensive income as appropriate.
  • Replace references to IAS 39 with references to IFRS 9.
  • Require that contingent consideration that is not equity is measured at fair value at each reporting date and changes that are not measurement period adjustments are recognised in profit or loss.

 

2. Annual improvements 2010-2012

To be applied to periods beginning on or after 1 January 2014 (1 February 2015 for EU preparers). Earlier application is permitted.

As part of the annual improvements 2010-2012 cycle, IFRS 3 is amended to clarify that contingent consideration that is classified as an asset or liability is measured at fair value at each reporting date.

3. Annual improvements 2011-2013

To be applied to annual periods beginning on or after 1 July 2014 (1 January 2015 for EU preparers). Earlier application is permitted.

As part of the annual improvements 2011-2013 cycle, IFRS 3 is amended to clarify that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.

4. IFRS 15 Revenue from Contracts with Customers amendments to IFRS 3

Effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted.

As a result of the issue of IFRS 15, IFRS 3 is amended to refer to income recognised in accordance with the principles of IFRS 15 rather than amortisation recognised in accordance with IAS 18 in the context of the measurement of contingent liabilities.

5. IFRS 16 Leases amendments to IFRS 3

To be applied to annual periods beginning on or after 1 January 2019. Earlier application is permitted.

IFRS 3 is amended to:

  • Remove guidance relating to operating leases in which the acquiree is the lessee.
  • Add guidance on the recognition of right-of-use assets and lease liabilities for leases in which the acquiree is the lessee.
6. IFRS 17 Insurance Contracts amendment to IFRS 3*

To be applied to periods beginning on or after 1 January 2021. Earlier adoption is permitted.

IFRS 3 is amended to:

  • Delete the exception to the requirement to classify or designate identifiable assets and liabilities at the acquisition date in relation to insurance contracts.
  • Add an exception to the recognition and measurement principles relating to insurance contracts.

*Not EU endorsed as at 20 April 2018. Read more on EU Endorsement.

7. Annual Improvements 2015-17*

To be applied to annual periods starting on or after 1 January 2019. Earlier application is permitted.

An amendment to IFRS 3 clarifies that when an entity obtains control of a business that is a joint operation, and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages.

*Not EU endorsed as at 20 April 2018. Read more on EU Endorsement.

8. Amendments to References to the Conceptual Framework in IFRS Standards – amendment to IFRS 3*

Effective for annual periods beginning on or after 1 January 2020. Earlier application is permitted, if at the same time an entity also applies the amendments to other IFRS Standards.

A footnote is added to IFRS 3 to clarify that for the purposes of applying the Standard, the definitions of asset and liability contained within the 2001 Framework for the Preparation and Presentation of Financial Statements apply rather than those in the 2018 Conceptual Framework.

*Not EU endorsed as at 20 April 2018. Read more on EU Endorsement.