Amendments to IFRS 11 will result in more consistent business combination accounting.
There has long been a question, particularly in the energy and natural resources sector, over whether IFRS 3 Business Combinations applies when an entity acquires an interest in a joint operation that meets that standard’s definition of a business.
In response to diversity in practice, the IASB has issued Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11).
The amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business.
“The amendments bring clarity to an area in which there has been long-running debate, and will result in more consistent accounting for the acquisition of interests in a joint operation.”
Read our In the Headlines to find out more about the amendments, including a worked example illustrating their application.
Business combination accounting also applies to the acquisition of additional interests in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interests in the joint operation will not be remeasured.
The amendments place the focus firmly on the definition of a business, because this is key to determining whether the acquisition is accounted for as a business combination or as the acquisition of a collection of assets. As a result, this places pressure on the judgement applied in making this determination.
The amendments apply prospectively for annual periods beginning on or after 1 January 2016. Early adoption is permitted.
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