I hope all of you enjoyed your Valentine's Day! Whether you’re married, single (hello Galentines!), or think it’s a silly day, I look at the day as a way to celebrate anything that makes you happy or feel loved (and for me, wine and chocolate always help). But do you know what else has recently given me some happiness in my life? IFRS 3! That’s right. Accounting guidance has brought me some joy (do I need to get a hobby??). And I’m actually not joking – I love IFRS 3, which governs the accounting topic of business combinations under IFRS standards! I was recently assigned to develop our new course on IFRS 3 (more on this in a bit) and it gave me the opportunity to really dive into the Standard and understand some of the nuances. And during that process, I fell in love. So, let me share with you some of the reasons why I love IFRS 3.

One of our initiatives for 2022 is to build a comprehensive and interactive IFRS eLearning library to complement our current U.S. GAAP eLearning library. And guess what, we’re off to a lovely start! One of our first published courses addresses the popular topic of acquiring a business and provides an introduction to IFRS 3: Business Combinations: Scope, definition of a business and identifying the acquirer. Under IFRS 3, a business combination is a transaction or other event in which an acquirer obtains control of one or more businesses, and IFRS 3 requires the application of the acquisition method when accounting for all business combinations. The application method can be separated into four steps:

1. Identify the acquirer
2. Determine the acquisition date
3. Recognize and measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree
4. Recognize and measure goodwill or a gain from a bargain purchase

Does this sound familiar? ASC 805, which governs business combinations under U.S. GAAP, requires the use of the same method when accounting for a business combination. And this is one of the main reasons why I love IFRS 3; it is mostly converged with ASC 805! I say “mostly” because there are a few differences between the two Standards. Here are a few of the differences that I enjoy as it relates to the content we cover in our first IFRS 3 course:

• Scope: There are generally no scope exceptions for not-for-profit entities in IFRS 3 (not-for-profits are scoped out of ASC 805)
• Identifying a business: IFRS 3 provides a two-part framework to help determine whether an acquired integrated set meets the definition of a business (this is similar to ASC 805); however, under IFRS 3, the first part of the framework to identify the concentration of the fair value of what was acquired is OPTIONAL (this is known as the concentration test). Under ASC 805, both parts of the framework must be performed to identify whether an acquired set meets the definition of a business.
• Acquirer: IFRS 10, which provides guidance on control, is used to identify the acquirer under IFRS 3. IFRS 3 has no guidance on identifying primary beneficiaries because there is no consolidation guidance like there is in U.S. GAAP (which is used to identify an acquirer in ASC 805). As you can guess, I LOVE this difference!

So, are you feeling the love for IFRS 3 yet? If not, I’ll keep going! In our second course on IFRS 3, we discuss Steps 3 and 4 of the acquisition method, which includes exceptions to general principles, calculating goodwill, measurement of noncontrolling interests, step acquisitions, and measurement period adjustments. As you can guess, we see a few more differences between the Standards in these areas and here are a few of my favorites:

• Leases: Under IFRS 3, the acquirer must consider the lease term when measuring the acquisition-date fair value for operating leases for which the acquiree is a lessor (but it does not require the acquirer of an operating lease for which the acquiree is a lessor to recognize a separate asset (liability) based on the lease term as compared to market terms as required in ASC 805).
• Noncontrolling interest: ASC 805 requires noncontrolling interest in the acquiree to be measured at fair value, but under IFRS 3, the acquirer can elect to measure fair value interest in one of two ways (either at fair value, similar to ASC 805, or at its proportionate interest in the fair value of the identifiable assets and liabilities of the acquiree).

There are a few more differences that I favor with IFRS 3, but you can read about those in our Business Combination Topic Page, which provides all sorts of resources and guidance on accounting for business combinations!

In closing, I’d like to share my love of IFRS 3 with you! For our first 14 purchasers (in honor of Valentine’s Day), you can purchase our first IFRS 3 course for FREE by using the code “ILUVIFRS3”. We’ve incorporated a fun theme throughout the course, and I truly believe you will fall in love!

And as a reminder, our second course on IFRS 3 will be available in our IFRS eLearning library soon! As always, if you have any additional questions, please feel free to contact us and we’ll be happy to assist you in any way!

About GAAP Dynamics  

We’re a DIFFERENT type of accounting training firm. We don’t think of training as a “tick the box” exercise, but rather an opportunity to empower your people to help them make the right decisions at the right time. Whether it’s U.S. GAAP training, IFRS training, or audit training, we’ve helped thousands of professionals since 2001. Our clients include some of the largest accounting firms and companies in the world. As lifelong learners, we believe training is important. As CPAs, we believe great training is vital to doing your job well and maintaining the public trust. We want to help you understand complex accounting matters and we believe you deserve the best training in the world, regardless of whether you work for a large, multinational company or a small, regional accounting firm. We passionately create high-quality training that we would want to take. This means it is accurate, relevant, engaging, visually appealing, and fun. That’s our brand promise. Want to learn more about how GAAP Dynamics can help you? Let’s talk!

Disclaimer  

This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.