IASB Completes Second Phase Of Business Combinations Project
The International Accounting Standards Board (IASB) has completed the second phase
of its business combinations project by issuing a revised version of International
Financial Reporting Standards (IFRS) 3 Business Combinations and an amended version
of IAS 27 Consolidated and Separate Financial Statements.
The project was undertaken jointly with the US Financial Accounting Standards
Board (FASB). The objective was to develop a single high quality accounting
standard that would ensure that the accounting for business combinations is
the same whether an entity is applying International Financial Reporting Standards
(IFRSs) or US generally accepted accounting principles (GAAP). The new requirements take effect on 1 July 2009, although entities are permitted
to adopt them earlier. Business combinations are an important feature of the capital markets, and
according to the IASB, over the past decade the average annual value of corporate
acquisitions worldwide has been the equivalent of 8-10% of the total market
capitalisation of listed securities. The Board stated that in publishing its equivalents to IFRS 3 and IAS 27, the
FASB has made fundamental changes to its accounting for business combinations,
most of which bring US accounting into line with the existing IFRS 3 and IAS
27. Other improvements are set to change both IFRSs and US GAAP, and the revised
IFRS 3 supposedly reinforces the existing IFRS 3 model, but remedies problems
that have emerged in its application. Commenting on Thursday’s announcement, Sir David Tweedie, IASB Chairman,
explained that: "Investors and their advisers have a difficult enough job assessing how
the activities of the acquirer and its acquired business will combine. But comparing
financial statements is more difficult when acquirers are accounting for acquisitions
in different ways, whether those differences are a consequence of differences
between US GAAP and IFRSs or because IFRSs or US GAAP are not being applied
on a consistent basis." "Now the accounting requirements in IFRSs and US GAAP will be substantially
the same, thanks largely to the changes that the FASB has made to US GAAP. The
changes to IFRSs have, in contrast, been relatively small." .
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