Updating a reference to the Conceptual Framework
Tier 1 and Tier 2
The International Accounting Standards Board (IASB) has recently issued for comment ED/2019/3 Reference to the Conceptual Framework (Proposed amendments to IFRS 3).
This ED addresses an issue that arose during the development of the Conceptual Framework for Financial Reporting (2018 Conceptual Framework).
When the IASB issued the 2018 Conceptual Framework it acknowledged that IFRS 3 Business Combinations still referred to the definitions of assets and liabilities in the Framework for the Preparation and Presentation of Financial Statements (1989 Framework). The IASB indicated that it would consult separately on proposals to update this reference.
This ED sets out those proposals.
IFRS 3 currently requires that the assets and liabilities recognised in a business combination meet the definitions of assets and liabilities in the 1989 Framework.
These definitions differ from those in the 2018 Conceptual Framework. If the reference were updated without making any other changes to IFRS 3, this could lead to more assets and liabilities qualifying for recognition in a business combination.
Some of those assets or liabilities might not qualify for recognition in accordance with other IFRS Standards after the acquisition date. This could give rise to the situation where an acquirer would first recognise those assets or liabilities at the time of the business combination and then derecognise them immediately afterwards.
The IASB’s view is that the resulting ‘day 2’ loss or gain would not depict an economic loss or gain, and would not faithfully represent any aspect of the acquirer’s financial performance.
The proposed amendments are intended to avoid this situation occurring.
IASB ED/2019/3 proposes three related amendments to IFRS 3.
The ED proposes to:
- update IFRS 3 so that it refers to the definitions of assets and liabilities in the 2018 Conceptual Framework rather than the definitions in the 1989 Framework;
- add an exception to the recognition principle in IFRS 3. For liabilities and contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies if incurred separately, an acquirer should apply IAS 37 or IFRIC 21 respectively, instead of the 2018 Conceptual Framework, to identify the obligations it has assumed in a business combination; and
- add to IFRS 3 an explicit statement that an acquirer should not recognise contingent assets acquired in a business combination.
The XRB Board is committed to adopting international standards in the for-profit sector. Generally, once a standard has been issued by the IASB, the NZASB then issues the New Zealand equivalent standard without further consultation.
Accessing the consultation documents
Commenting on the Proposal
This is your opportunity to comment on these proposals.
Comments are due to the NZASB by 16 August 2019 and to the IASB by 27 September 2019.
Send your comments—both formal and informal— to the NZASB using the upload form below.
We also encourage you to send comments directly to the IASB, with a copy to the NZASB. Your comments can be made electronically to the IASB website by clicking on the following link https://www.ifrs.org/projects/open-for-comment/. First-time users must register with IASB to submit electronically.
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