International Financial Reporting Standards (IFRS) for business combinations bring end of goodwill amortisation. PwC analyses the impact of the proposed changes.
IFRS 3, Business Combinations, was issued in March 2004 and is applicable to all business combinations for which the agreement date is on or after 31 March 2004. In this context the IASB revised IAS 36, Impairment of Assets, and IAS 38, Intangible Assets. Those Standards are required to be applied prospectively from the date at which IFRS 3 is first applied.
The new, respectively revised Standards introduce significant changes. These include the application of the purchase method i.e. the allocation of purchase price across all acquired assets, including a wider range of intangible assets, liabilities, including contingent liabilities and the replacement of goodwill amortisation by a mandatory annual impairment test.
This could lead to more volatile earnings. Additionally detailed disclosures about transactions and impairment testing are required. Deal making will become much more transparent to investors and analysts. CEOs and CFOs need to consider whether the next deal really is the best deal.
The purchase price allocation together with the subsequent impairment tests could be both time consuming and complex and may require the assistance of professional valuation specialists.
Please
download the full analysis of the proposed International Financial Reporting Standards by PricewaterhouseCoopers' valuation & strategy team.
