IFRS 3 establishes the accounting and reporting requirements (known as ‘the acquisition method’) for the acquirer in a business combination. The key steps in applying the acquisition method are summarised below:
Step 1 – identify a business combination
Step 2 – identify the acquirer
Step 3 – determine the acquisition date
Step 4 – recognise and measure identifiable assets acquired and liabilities assumed
Step 5 – recognise and measure any non-controlling interest
Step 6 – determine consideration transferred
Step 7 – recognise and measure goodwill or a gain from a bargain purchase
Incorrect application of the acquisition method can significantly impact asset valuations, goodwill, profit recognition, and financial statement disclosures. Entities involved in mergers and acquisitions should carefully assess each step of IFRS 3 to ensure accurate financial reporting.