Applying IFRS 3 in Accounting for Business Acquisitions
Abstract: Background and Problem Discussion: This essay has been commissioned by a Swedish groupconsidering to voluntary adopt the regulations of IAS/IFRS in its accounting. This group hasfurther given us a case; to investigate how the accounting for a specific business acquisitionwould have been affected by the regulation of IAS/IFRS, or more specifically by IFRS 3 –Business Combinations. When developing IFRS 3, the IASB wanted to create a standard thatwould provide users of financial statements with the most relevant and reliable information.However, with this ambition IFRS 3 became extensive and implies a number of importantchanges. The question is how the application of this standard really affects the groups applying it?Is it possible that the IASB, with their ambitions, has made IFRS 3 too demanding or toodifficult to apply?Purpose: The purpose of this essay is to investigate the application of IFRS 3, in order toprovide parts of a basis for the decision-making of our assigner in its considerations to voluntaryadopt the IAS/IFRSs in its accounting. In order to do this, we aim to identify what issues orpractical problems come with the application of IFRS 3. We also aim to examine how IFRS 3affects consolidated financial statements.Delimitations: This essay examines the accounting for one specific acquisition in accordancewith IFRS 3, and therefore the empirical material is delimited to this acquisition. The accountingfor the acquisition was originally established in accordance with Swedish GAAP, which thereforeserves as a starting point for our discussions. Further, this essay treats the accounting issues andnot the valuation issues that come with the application of IFRS 3.Method: This essay is a case study limited to the examination of one single acquisition, whichlimits our ability to come to conclusions applicable to all acquisitions. However, we believe thatthe results from our case study can be useful and serve as a basis for comparison for other groupsfacing a first-time adoption of IFRS 3. In carrying through our work with the case, we haveexamined the accounting regulations of IFRS 3 and Swedish GAAP concerning businessacquisitions. We have also carried through interviews with an auditor, and with persons involvedin the acquisition.Results and Conclusions: From the application of IFRS 3 on this acquisition we were able toidentify eleven new intangible assets, five of which were considered to meet the criteria forrecognition. The value of the recognisable intangible assets would importantly have diminishedthe value of goodwill recognised in the original accounting for the acquisition. Further, IFRS 3would have demanded an explanation of this goodwill value as well as much more extensivedisclosures. The main effect on the income statements is that goodwill under IFRS 3 would notbe amortised, but instead annually tested for impairment. Our conclusion is that IFRS 3 probablydemands too much from groups applying it, in relation to the extent it benefits users of financialstatements by giving useful information.
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