Definition of a
business
Proposed amendments to IFRS 3
4 July 2016
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A problem fixed?
“Clarification and narrowing of the current,
vague definition of a business would be
welcome. Currently, in a few sectors you are
not necessarily on solid ground when you
decide whether to account for an asset or a
business acquisition.
Whilst the proposed tests may effect some
narrowing, implementing them might be
complex.”
Mike Metcalf
KPMG’s global IFRS
business combinations
leader
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Likely sector impacts
Purchase of
Now
Proposed
Tenanted
property
In-process R&D
project
Exploration
project
Mixed practice
Asset or business acquisition
(depending on the workforce)
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
Why is it important?
Business and asset acquisition accounting can be very different
Business
acquisition
Asset
acquisition
Goodwill (not amortised)
Additional intangibles
Bargain purchase gain
Day-1 deferred tax
Capitalised transaction costs
© 2016 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4
The proposals
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Test 1: Asset concentration test
Is substantially all the fair value concentrated in one or more
similar assets?
Yes
Asset
acquisition
No
Could be a
business…
STOP
Apply test 2
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Test 2: Workforce test
Is there an acquired workforce that has the necessary skills for
producing outputs now or developing future outputs?
Yes
Business
acquisition
No
Could be a
business…
STOP
Apply test 3
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Test 3: Process test
Is it disruptive or costly to replace the process that contributes
to the ability to produce output?
Yes
Business
acquisition
STOP
No
Asset
acquisition
STOP
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Our thoughts
The proposals aren’t drafted in a succinct,
straightforward way
Tests 2 and 3 may not achieve the desired
narrowing
The combination of both factors may make
implementation complex
So, would the proposals achieve their objectives?
© 2016 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
9
Next steps
© 2016 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Next steps
Read the
proposals
Speak to your
usual KPMG
contact
Comment on
the proposals by
31 October 2016
© 2016 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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particular situation.
© 2016 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.