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IFRS 3 Business combinations

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

IFRS 3 Business Combinations

This factsheet explains how to determine whether a transaction is within the scope of IFRS 3 and provides an overview of the acquisition method. It also provides a summary of the standard’s disclosure requirements.

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Summary and timeline

Looking for the synopsis? Our IFRS 3 summary and timeline features information on current proposals and a timeline of IASB updates.

Recent amendments

All amendments issued up to and including the publication date of 1 January 2023 are included within the IFRS Foundation’s latest version of the issued standard: 2023 Issued Standard – IFRS 3. Issued amendments may, therefore, have a mandatory effective date that is later than 1 January 2023 – see below for details.

Any amendments issued after 1 January 2023 will not be included in the IFRS Foundation’s 2023 Issued Standards but will be listed below and identified as such.

See the Corporate Reporting Faculty’s annual IFRS factsheets for a more detailed discussion of recent IFRS amendments.

  • IFRS 17 Insurance Contracts amendment to IFRS 3

    Mandatory date: Annual periods beginning on or after 1 January 2023. Earlier application 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. 
  • Amendments to IFRS 17 – amendment to IFRS 3

    Mandatory date: Annual periods beginning on or after 1 January 2023. Earlier application is permitted.

    IFRS 3 is amended to refer to assets for insurance acquisition cash flows acquired in a business combination as well as contracts within the scope of IFRS 17.

  • Reference to Conceptual Framework- amendments to IFRS 3

    Mandatory date: Annual periods beginning on or after 1 January 2022. Earlier application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time.

    The amendments update IFRS 3 to refer to the 2018 Conceptual Framework rather than the 1989 Framework. They also:

    • Add a requirement to apply IAS 37 to obligations within the scope of that standard in order to determine whether a present obligation exists as a result of past events at the acquisition date;
    • Add a requirement to apply IFRIC 21 to determine whether an obligating event giving rise to a liability to pay a levy has occurred by the acquisition date;
    • Add explicit statement that contingent assets are not recognised on a business acquisition.

    For a more detailed discussion of the amendment, read the faculty’s factsheet:

  • Amendments to References to the Conceptual Framework in IFRS Standards – amendment to IFRS 3

    Mandatory date: Annual periods beginning on or after 1 January 2020. Earlier application is permitted if the entity also applies the amendments to other standards at the same time.

    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.

  • Definition of Business amendments to IFRS 3

    Mandatory date: Annual periods beginning on or after 1 January 2020. Earlier application is permitted.

    The IFRS 3 definition of a business and accompanying application guidance are amended to clarify that a business must include an input and a substantive process that together significantly contribute to the ability to create outputs. The definition focuses on outputs of goods and services provided to customers and removes reference to an ability to cut costs. Guidance and illustrative examples are also added to help reporters assess whether a substantive process has been acquired.

    For a more detailed discussion of the amendment, read the faculty’s factsheet:

UK reduced disclosures – FRS 101

UK qualifying parents and subsidiaries can take advantage of FRS 101 Reduced Disclosure Framework. Our FRS 101 page gives more information on which entities qualify and the criteria to be met.

  • Amendments to the standard for FRS 101 preparers

    The following amendments must be made to IFRS 3 in order to achieve compliance with the Companies Act and related Regulations:

    1. In the case of a bargain purchase, the excess is recognised on the face of the statement of financial position. Subsequently the excess is measured in profit or loss over a specified period.
    2. Where the cost of a business combination may be adjusted due to consideration which is contingent on future events, the estimated amount of the adjustment is included in the cost of the business combination at the acquisition date if the adjustment is probable and can be measured reliably. If the potential adjustment is not recognised at the acquisition date but later becomes probable and can be measured reliably, the additional consideration is treated as an adjustment to the cost of the business combination. From 1 January 2016 this guidance on contingent consideration is amended to require that contingent consideration balances arising from acquisitions before SI 2015/980 is applied (usually 1 January 2016) are not adjusted as a result of changes in company law and the company's previous accounting policy continues to apply. Contingent consideration balances arising from acquisitions after SI 2015/980 is applied are accounted for in accordance with IFRS 3, without amendment to the standard.
  • Disclosure exemptions for FRS 101 preparers

    FRS 101 paragraph 8(b) states that a qualifying entity is exempt from most of the IFRS 3 disclosure requirements in respect of business combinations during the period or after the end of the period provided that equivalent disclosures are made in the consolidated financial statements of the group in which the entity is consolidated. The following basic disclosures are still required:

    • The name and a description of the acquiree;
    • The acquisition date and percentage of voting equity interests acquired;
    • The acquisition date fair value of consideration transferred, in total and by class;
    • Amounts recognised at acquisition for each major class of assets and liabilities;
    • The gain recognised in a bargain purchase;
    • The non-controlling interest recognised at acquisition and measurement basis applied;
    • The revenue and profit or loss of the combined entity for the current period as though the acquisition date for any mid-period business combination was the start of the period.

    IFRS 3 paragraphs for which exemption is available: 62, B64(d), B64(e), B64(g), B64(h), B64(j)-(m), B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66, B67.

ICAEW factsheets and guides

The Corporate Reporting Faculty's annual IFRS factsheets provide a more detailed discussion of recent IFRS amendments.

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