The Board continued its deliberations on the measurement of non-controlling interests and goodwill. The Board also discussed the accounting in a business combination for:
- items currently described as contingent assets and contingent liabilities in IFRS 3 Business Combinations and IAS 37 Provisions, Contingent Liabilities and Contingent Assets,
- employee benefit plans,
- valuation allowances and
Non-controlling interests and goodwill
The Board discussed the effects of its tentative decision not to require fair value measurement of NCI on other aspects of the business combinations project and whether entities should be prohibited from measuring NCI at fair value. The Board tentatively decided that, in accordance with the control model, once control has been achieved any changes in ownership interests (such as subsequent acquisitions or dispositions) between controlling and non-controlling interests are transfers between owners and there should be no adjustment to goodwill.
The Board asked the staff to analyse further the basis for permitting or requiring NCI to be measured at fair value in some circumstances.
Assets and liabilities currently described as ‘contingent’
The Board discussed the accounting for those items described as contingent assets and contingent liabilities in IFRS 3 and IAS 37. Taking into consideration the existence and timing of the project to amend IAS 37, the Board tentatively decided to retain the existing IFRS 3 guidance with the following improvements that have been affirmed by the Board in the IAS 37 redeliberations:
- the business combinations standard should clarify that only those items that satisfy the definition of an asset or liability should be recognised in a business combination. The terms contingent asset and contingent liability should not be used in the business combinations standard, in order to make it clear that possible assets and possible liabilities should not be recognised; and
- the probability recognition criterion for liabilities should be removed from the business combinations standard. The probability recognition criterion does not apply to contingent liabilities in the existing IFRS 3.
The guidance in the business combinations standard will be reviewed when the Board considers consequential amendments in the IAS 37 project.
Employee benefit plans
In May 2006 the Board tentatively affirmed the Exposure Draft proposal that post-employment benefit liabilities assumed in a business combination should not be measured at fair value. At this meeting the Board tentatively decided to extend this measurement exception to all assets and liabilities within the scope of IAS 19 Employee Benefits. Therefore, all assets acquired and liabilities assumed in a business combination that are related to short-term employee benefits, post-employment benefits, other long-term employee benefits and termination benefits within the scope of IAS 19 would be measured in accordance with IAS 19.
The Board tentatively affirmed the proposal in the Exposure Draft that receivables acquired in a business combination should be measured at their acquisition date fair values. As a consequence, the acquirer would not recognise a separate valuation allowance for uncollectible amounts at the acquisition date because any uncertainty about collections and future cash flows is included in the fair value measure.
However, the Board acknowledged that information on the uncollectible amounts can be important to users of financial statements. Therefore, the Board asked the staff to conduct further research on the presentation and disclosure of the historical performance of receivables acquired in a business combination.
The Board also tentatively decided that the business combinations standard should not specify the unit of measurement for the initial measurement of receivables acquired in a business combination.
Income tax assets and liabilities
The Board tentatively affirmed the proposal in the Exposure Draft that income tax assets acquired and liabilities assumed in a business combination should be measured in accordance with the guidance in IAS 12 Income Taxes rather than at fair value.
In addition, the acquirer should recognise separately from a business combination any changes in the acquirer’s deferred tax assets that result from the business combination. Such changes should be recognised in post-combination profit or loss, or in equity as specified in IAS 12.
The Board also tentatively decided to remove the rebuttable presumption in the Exposure Draft that changes to the acquired deferred tax benefits within a year of the business combination should be reflected in goodwill. The Board also tentatively decided that adjustments to the acquired deferred tax benefits would be recognised within the normal measurement period. Therefore, adjustments to the acquired deferred tax benefits recognised within the measurement period that relate to facts and circumstances that existed at the acquisition date should be recognised as an adjustment to goodwill. After the normal measurement period changes in acquired deferred tax benefits should be recognised in income.
Because the Board is developing proposals for the treatment of tax uncertainties in the short-term convergence project on income taxes, the Board decided that, pending those proposals, no changes should be made to IAS 12 relating to tax uncertainties.
The Board also tentatively decided to retain the requirement in IAS 12 to recognise deferred tax assets and liabilities for taxable and deductible temporary differences related to identifiable indefinite-lived intangible assets.