One step forward

The International Accounting Standards Board (IASB) recently announced new standards on business combinations and non-controlling interest that share some important similarities with those released in December by FASB.
“The fact that the standards are very similar is a further step towards greater consistency between IFRS and US GAAP,” said Mary Tokar, head of KPMG International Financial Reporting Group.
“Although not 100 percent identical, the two boards worked to reach agreement not just on concepts and principles, but also on using the same wording,” she continued.
In a recent announcement from KPMG on the new standards, the accounting firm noted that progress on convergence is one of the factors supporting the recent changes to the SEC rules, which allow foreign private issuers to use IFRS as published by the IASB without having to reconcile those results to US GAAP.
The US standards require non-controlling interests to be measured at fair value, i.e., a “full fair value method” in accounting for business combinations, which effectively means that an acquirer will recognize the full goodwill of the acquiree, including goodwill relating to non-controlling shareholders. The international standards allow the full fair value method, but companies also have an option to follow the current IFRS model whereby goodwill relating to non-controlling shareholders is not recognized. Tokar noted that the international standards require less change for IFRS users than for entities reporting under US GAAP. This is partly to the option that is available in the international standards, but not in the U.S. standards, to limit the recognition of goodwill to the controlling interest acquired. It is also because the Boards drew on the IASB’s current business combinations standard, which was issued after the comparable US standard. In several areas existing IFRS requirements were the starting point for the two Boards.
Tokar commented: “The boards were able to build on progress made to date in a way that reduces the degree of change required for IFRS preparers.”
KPMG warns that the limited changes to existing international standards should not lull companies into complacency, Tokar said: “Companies applying IFRS are advised to look carefully at the new requirements. In particular, the new standards require purchases and sales of non-controlling shareholdings when control is retained to be accounted for fully as equity transactions, which will reduce the current diversity in accounting for such transactions.”