IFRS3 - Business Combinations – Definition

IFRS3 Background:

IFRS 3 (2008) replaced IFRS 3 (2004) effective for business combinations on or after 1 July 2009. Earlier application is permitted, but not for periods beginning before 1 July 2007.
IFRS3 (2008) resulted from a joint project with the US Financial Accounting Standards Board. FASB issued a similar standard in December 2007 (SFAS 141(R)). The revisions will result in a high degree of convergence between IFRSs and US GAAP in these areas, although some potentially significant differences remain. Among the differences: the FASB standard requires (rather than permits) the full goodwill method. There are also differences in scope, the definition of control, and how fair values, contingencies, and employee benefit obligations are measured, as well as several disclosure differences.

Scope of IFRS3

Acquirer must be identified. Under IFRS 3, an acquirer must be identified for all business combinations.

Scope changes from IFRS 3(2004). IFRS 3(2008) applies to combinations of mutual entities and combinations without consideration (dual listed shares). These are excluded from IFRS 3(2004).

Scope exclusions. IFRS 3 does not apply to the formation of a joint venture, combinations of entities or businesses under common control. The IASB added to its agenda a separate agenda project on Common Control Transactions in December 2007. Also, IFRS 3 does not apply to the acquisition of an asset or a group of assets that do not constitute a business.

Key areas of IFRS3

Method of Accounting for Business Combinations

  • Acquisition method
  • Measurement of acquired assets and liabilities
  • Measurement of NCI (Non Controlling Interest)
  • Acquired intangible assets


Business Combination Achieved in Stages (Step Acquisitions)

Provisional Accounting

Cost of an Acquisition

  • Measurement
  • Acquisition costs
  • Contingent consideration

Pre-existing Relationships and Reacquired Rights

Parent's Disposal of Investment or Acquisition of Additional Investment in Subsidiary

  • Partial disposal of an investment in a subsidiary while control is retained
  • Partial disposal of an investment in a subsidiary that results in loss of control
  • Acquiring additional shares in the subsidiary after control was obtained


  • Disclosure of information about current business combinations
  • Disclosure of information about adjustments of past business combinations

Transition Requirements

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