Louise Hansen

Student thesis: Master thesis


The European Commission’s desire to enhance the comparability and the free movement between the European countries was reflected in the implementation of the international accounting standards, called “International Financial Reporting Standards”, IFRS. The thesis has reviewed the international standards IAS 38 and IFRS 3, where the latter is of most importance to the thesis, as it deals with business combinations. IFRS 3 is reviewed to highlight the requirements for the accounting treatment and subsequent disclosure requirements regarding business combinations so the reader of this thesis has a basic knowledge of the regulation before the analysis of the C20 companies’ and the remaining listed companies’ annual reports. The implementation of IFRS 3 Revised in 2009 has helped limit the recognition of goodwill if followed correctly. It is no longer possible to include a wide range of costs in the purchase price compared to the earlier version of IFRS 3. These costs include transaction costs in connection with the business combinations, as well as limitations to the recognition of restructuring provisions etc. In addition, more intangible assets can now be recognised in connection with the business combinations as the only requirements are that the intangible assets are identifiable and can be reliably measured at fair value. Three previous surveys conducted by KPMG, Ernst & Young and PwC have been reviewed as part of the thesis. These surveys show that the vast majority (over 50%) of the purchase price were often allocated to goodwill instead of intangible assets. This can cause major impairments to the companies’ earnings in the future, as the synergies of the business combination does not always happen in the future. Furthermore the surveys assess that the lack of allocation to intangible assets could be cause by a desire for discretion by the companies, as IFRS 3 has a lot of disclosure requirements. All the surveys show that the information provided in the annual reports are deficient according to the disclosure requirements in IFRS 3 and that some companies do not provide any information regarding business combinations during the year. The thesis concerns the business combinations made in the Danish stock listed companies for the years 2005 until 2011. This examination has been made to see if there are any differences in the way C20 companies and the remaining stock listed companies use IFRS 3. In addition, the thesis has investigated how C20 companies and the remaining listed companies have allocated the purchase price, in order to prove the following hypothesis: “C20 companies are better to allocate the purchase price on the respective intangible assets and less on goodwill, as a result of more and better resources, than the smaller listed companies”. The hypothesis has been tested with the help of the following sub-questions; 1. How much of the purchase price is allocated to other than goodwill? 2. Which other categories (tangible and intangible assets, liabilities etc.), and which types of assets, are the purchase price allocated to? 3. Are the information given in the notes in compliance with the disclosure requirements in IFRS 3? 4. Do the companies in general inform regarding the business combinations? The review of the purchase price allocations showed that the C20 companies were better at allocating the purchase price to other than goodwill, as well as to more categories and types of intangible assets than the remaining listed companies. The remaining listed companies often pooled the intangible assets together in “other intangible assets” whereas the C20 companies identified the intangible assets by name such as development project, concession rights etc. In regards to the information given in the notes both the C20 companies and the remaining listed companies were equally good/bad at being in compliance with the disclosure requirements in IFRS 3. Almost the entire population of annual reports for the years 2005 until 2011 does not comply with the standard as they have one or more deficiencies regarding the disclosure requirements. Furthermore, a few of the remaining listed companies do not inform of business combinations in the financial year. The thesis is concluded with the confirmation of the hypothesis.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2013
Number of pages75