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
BUSINESS
ACCOUNTING IMPACT
Old guidance Why change? Improvement in
applying the concept
of a business to
Business Definition too broad acquisitions
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
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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:
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.
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