Current Status

1. The ASB issued in July 2005 Financial Reporting Exposure Drafts (FREDs) 36 to 39 as part of a package of draft UK accounting standards reflecting the outputs from first and second phases of the International Accounting Standards Board (IASB) project on business combinations. The package comprised:
   • FRED 36 Business Combinations (IFRS 3) and Amendments to FRS 2 Accounting for Subsidiary Undertakings (parts of IAS 27 Consolidated and Separate Financial Statements).
   • FRED 37 Intangible Assets (IAS 38) and FRED 38 Impairment of Assets (IAS 36).
   • FRED 39 Amendments to FRS 12 Provisions, contingent liabilities and contingent assets and Amendments to FRS 17 Retirement benefits.
2. The IASB completed phase II of the project by publishing a revised IFRS 3 Business Combinations and an amended version of IAS 27 Consolidated and Separate Financial Statements in January 2008. The new requirements, for entities applying IFRS, are applicable from July 2009. Early application is permitted. Details of the requirements can be found on the IASB website:
   
   
   • IASB Business Combinations Project
3. The ASB has postponed any decision regards its proposals set out in FRED 36, 37 and 38 pending completion of its strategy for convergence of UK standards with IFRS.
4. In December 2005 the IASB decided the liabilities project was precedential to other current and potential projects. It therefore decided that the project should be repositioned as a standalone project, rather than as accompanying the business combinations project. Details of the IASB redeliberations of its exposure drafts (and thereby the proposals set out in FRED 39) can be found on the IASB website:
   
   
   • IASB Liabilities Project

   Background

5. The first phase of the Business Combinations project resulted in the IASB issuing IFRS 3 Business Combinations, and amendments to IAS 36 Impairment of Assets and IAS 38 Intangible Assets. These were published in March 2004. The primary objective of the IASB in Phase I of the project was to require one method of accounting for business combinations – the purchase method (renamed the acquisition method in Phase II). Prior to this International Accounting Standards (IAS) permitted two methods, the acquisition method and pooling of interests method (merger accounting).
6. The second phase was conducted by the IASB as a joint project with the US Financial Accounting Standards Board (FASB). This phase of the project reconsidered the guidance for applying the acquisition method of accounting for a business combination and particularly the method by which acquirers recognise and measure the business over which they obtain control. This phase also aims to improve the transparency of information provided to users of financial statements. An important aspect of Phase II is to achieve convergence with International Financial Reporting Standards (IFRS) and US GAAP.
7. The publication by the IASB of the revised standards from phase II concludes the substantive part of the IASB’s Business Combinations project. The IASB has however recently decided to add a project to its agenda on common control transactions. Details of this project can be found on the IASB website:
   
   
   • IASB Common Control Transactions
8. The ASB notes that some of the proposals set out in the FREDs may conflict with existing legal requirements. These matters are being investigated and it is hoped that they will be resolved with the assistance of the Department for Business Enterprise and Regulatory Reform (BERR).