IFRS 3 - Enlightening the world of Acquisitions : A study of IFRS 3, IAS 36 & IAS 38's impact on companies financial statements and their acquisition process

Abstract: Purpose: The purpose with this thesis is to describe and analyze how the new interna-tionally harmonized accounting standards IFRS 3, IAS 36 & IAS 38 affect the financial statements of companies listed on the Stockholm Stock Exchange and if the new rules have an impact on these firms acquisition practice. Method: The sample frame of this thesis constitutes of the A-list and the O-list’s Attract 40 of the Stockholm Stock Exchange. From these lists a random sample of 30 compa-nies has been used in order to conduct the research. To fulfill the purpose the authors have used the methodological triangulation approach, i.e. the use of more than one re-search approach. First, a quantitative method has been used in order to understand how the new accounting standards have effected the companies’ financial statements. This research has been conducted by analyzing the companies’ annual reports from 2004 and 2005. To be able to examine how IFRS 3, IAS 36 & IAS 38 affect the firms’ acquisition practices, the authors used a qualitative, survey-based, method. Conclusion: The quantitative research found that the new accounting standards have had a significant effect on the companies’ financial statements. The operating profits for the 30 companies examined rose with 9.54 per cent or 12.9 billion SEK due to the ac-counting change. This increase was also evident in the companies’ balance sheet where the assets and owners’ equity rose with over 7 billion SEK. In the qualitative research the authors found that companies handle the accounting change in many different ways. The authors have found that the companies that have been most frequently engaged in acquisitions are also the ones that have been putting more effort in the adjustment of their acquisition process and more time to the trans-formation to IFRS 3, IAS 36 & IAS 38. A factor that most companies have in common is that they have needed to adjust their standardized acquisition model for the non-amortization of goodwill, dismissals for re-structuring costs and the fact that assets need to be valued to its fair value. Furthermore, the fact that the companies now, according to IFRS 3, must identify and separate the in-tangible assets from the goodwill entry has made the due diligence process more rigor-ous. The acquisition process will therefore be more time-consuming and require more resources than before.