Amendments To Ifrs 3 - Definition of A Business: International Financial Reporting Bulletin 2018/07

AMENDMENTS TO IFRS 3 – DEFINITION OF A
BUSINESS
INTERNATIONAL FINANCIAL REPORTING BULLETIN

2018/07
Summary STATUS
Final – issued in
In October 2018, the IASB issued amendments to IFRS 3 Business Combination to improve the definition of a October 2018
business. The amendments arose from a post-implementation review of IFRS, which is an assessment carried
out to determine whether an IFRS Standard works as intended. EFFECTIVE DATE
Acquisitions that occur
The amendments and supplementary guidance are intended to help companies determine whether an on or after first annual
acquisition is of a business or a group of assets. Distinguishing between a business and a group of assets is reporting period
important because an acquirer recognises goodwill only when acquiring a business. beginning on or after 1
January 2020. Early
application is
A summary of the amendments are as follows: permitted.
ACCOUNTING IMPACT
Old guidance Why change? Improvement in
applying the concept
of a business to
Business Definition too broad acquisitions
Defined in IFRS 3 Amendment clarifies
Focused on returns in Definition of what How to apply

the form of dividends, a business is definition
lower costs or other
economic benefits to
investors and others
A comparison of the old definition to the new definition is as follows:
Old Definition New Definition
An integrated set of activities and assets that An integrated set of activities and assets that
is capable of being conducted and managed is capable of being conducted and managed
for the purpose of providing a return in the for the purpose of providing goods or services
form of dividends, lower costs or other to customers, generating investment income
economic benefits directly to investors or (such as dividends or interest) or generating
other owners, members or participants. other income from ordinary activities.
2 IFRB 2018/07 Amendments to IFRS 3 – Definition of a Business
_______________________________________________________________________________________________________________
The amendments clarify the definition of a business, with the objective of assisting entities to determine
whether a transaction should be accounted for as a business combination or as an asset acquisition. The
amendments:
(a) clarify that to be considered a business, an acquired set of activities and assets must include, at a
minimum, an input and a substantive process that together significantly contribute to the ability to
create outputs;
(b) remove the assessment of whether market participants are capable of replacing any missing inputs
or processes and continuing to produce outputs;
(c) add guidance and illustrative examples to help entities assess whether a substantive process has
been acquired;
(d) narrow the definitions of a business and of outputs by focusing on goods and services provided to
customers and by removing the reference to an ability to reduce costs; and
(e) add an optional concentration test that permits a simplified assessment of whether an acquired set
of activities and assets is not a business.
Additional guidance has also been provided in the illustrative examples to accompany the revised definition,
including:
Acquisition of an operational entity

Acquisition of intangibles
and a closed facility
Determining the fair value of the

Acquisiton of loan portfolio
gross assets acquired
IFRS 3 was the result of a joint project between the IASB and the U.S. Financial Accounting Standards Board
(FASB). The FASB amended its definition of a business last year. The amendments to IFRS 3 are based on
conclusions similar to those reached by the FASB in amendments it made to its requirements in 2017, although
the two sets of amendments differ in some respects. The Board expects that the amendments will lead to
more consistency in applying the definition of a business across entities applying IFRS Standards and entities
applying US GAAP.
This bulletin summarises the main points of the amendments. For more information, the full document on
the IASB’s site can be found here.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover
specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact your
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AMENDMENTS TO IFRS 3 – DEFINITION OF A

INTERNATIONAL FINANCIAL REPORTING BULLETIN

Defined in IFRS 3 Amendment clarifies

Focused on returns in Definition of what How to apply

A comparison of the old definition to the new definition is as follows:

Old Definition New Definition

Acquisition of an operational entity

Determining the fair value of the

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