IFRS 3 - ændringerne og deres betydning

Mie Vesth & Linda Tanggaard Nielsen

Student thesis: Master thesis


Danish entities must present their financial statements under IFRS if they are listed on the stock exchange, for which reason changes to these standards have a considerable impact on financial reporting in Denmark. This thesis is based on IFRS 3, Business Combinations, and a description of the changes that have been introduced to it, as well as US GAAP. We find it interesting to illustrate how these changes impact on the annual report – from both the entity’s viewpoint and the financial statement user’s viewpoint. It is also interesting to examine the extent to which comparability has been achieved between US GAAP and IFRS as regards Business Combinations. The structure of the thesis is centred on four sub-elements leading to the conclusion. Part I contains a review of the standard as well as an examination of selected issues that may arise in connection with business combinations. The objective of this part is to provide an understanding of the standard and its related issues and to support the conclusion and future implications. Part II reviews the most material changes introduced by IFRS 3 (2008), constituting the theoretical framework of reference for the thesis. US GAAP is also examined, as the US standard has also been subject to changes relating to business combinations. In order to illustrate the comparability, the thesis also outlines the differences that still exist between US GAAP and IFRS. Part III reviews an example based on the Carlsberg Group’s acquisition of the Wusu Beer Group in 2006, constituting the empirical data base of the thesis. This example is used to illustrate how the changes identified in Part II have impacted on the annual report and selected key ratios. Based on the review in Part III, Part IV examines the implications for the entity and the financial statement user. This review will form the basis of our own approach to the changes implemented. The following conclusions may be drawn based on the four sub-elements. Part I clarified a number of issues in connection with the entities’ application of IFRS 3. These issues illustrate the necessity of introducing further changes to IFRS 3 or other standards that are impacted by the changes implemented in IFRS 3. The basis for this is the desire to have an annual report which to the highest degree possible gives a true and fair view and contains the same fundamental principles. Part II contains an outline of the changes implemented between IFRS 3 (2004) and IFRS 3 (2008). This outline has identified four changes that have been addressed in the other parts of the thesis, including the following: 1) recognition of acquisition-related costs, 2) possible recognition of minority interests at fair value, 3) recognition of contingent liabilities and 4) recognition of a business combination achieved in stages (a step acquisition). The review of the changes between IFRS and US GAAP illustrated that differences between IFRS and US GAAP relating to business combinations still exist. These are estimated to be of significance. It can, based on this review, be concluded that IASB’s objective of aligning the financial reporting standards has been successful. A precondition for this conclusion is, however, that the entities opt to recognise minority interests at fair value. It may, based on Part III, be concluded that the various changes will impact differently on the key ratios, for which reason an explicit conclusion cannot be drawn on whether the changes will prove advantageous or disadvantageous to the entities. Part IV contains a review of the changes' implications for the entities and the financial statement users. This review is based on the three bodies, IASB, EFRAG and Deloitte and also contains a description of our own position on this matter. On this basis, the following conclusions may be drawn on the four changes. As to the acquisition-related costs, we agree with IASB and EFRAG, but disagree with Deloitte, that determination of the fair value of the acquired entity, ie where acquisition-related costs are not included, represent the most accurate method. As to recognition of minority interests, we agree with IASB, but disagree with Deloitte and EFRAG, that it is inappropriate to offer the entities different options. This is assessed based on a reflection on the comparability with US GAAP. We also believe that recognition at fair value will provide the most accurate annual report. In connection with the changed recognition of conditional payments, we agree with all three bodies that it will provide added value to the financial statement users. We also agree with IASB, but disagree with Deloitte and EFRAG, that adjustments of the conditional payments should be taken to the income statement, as is the case in connection with the change. As to a business combination achieved in stages, we agree with the three bodies that the change will give a fairer presentation because of increased comparability. We believe that it will be more accurate to recognise one portion of the profit in the income statement from previously recognised investments, and to take the other portion to equity. However, this is scarcely practicable as it cannot be directly established how large a portion of the profit will arise as a result of the control element. We also believe that all changes indicate that IASB wants to alter the methodology in IFRS from being cost-based to being fair value-based. We believe that this is the correct approach as recognition of assets and liabilities etc at fair value will provide the fairest presentation of the annual report. However, this is not always feasible, for which reason we expect it will pose several challenges for IASB in its further efforts to change the standards. Overall, it can be concluded that the annual statement from users' perspective, is more accurate and comparable with the introduction of IFRS 3 (2008). From the entity’s point of view there cannot generally be made a conclusion, since the changes affect the annual report differently. However, the income statement becomes more influenced by the use of IFRS 3 (2008).

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2009
Number of pages139