BUSINESS COMBINATIONS: Determination of fair value remains unclear.

When an acquisition takes place, the assets of the acquired entity must be recognised at fair value. But the latest proposals from the International Accounting Standards Board do not do enough to address the problem of how fair value should be measured. Shan Kennedy explains

In June this year, the International Accounting Standards Board (IASB) issued proposed amendments to International Financial Reporting Standard (IFRS) 3, business combinations, as part of its project to converge IFRS with US GAAP. l Merger accounting is no longer permitted. All merger and acquisitions (M&A) transactions must be accounted for as the acquisition of one entity by another.

* Intangible assets of the acquired entity must be identified and recognised at fair value.

* Goodwill may not be amortised. Instead, an annual impairment review of its carrying value must be performed, generally using discounted cash flow techniques.

The proposals maintain these principles and extend the emphasis on the reporting of fair value at the acquisition date. They …