IFRS and Business Combinations

IFRS and Business Combinations



Introduction

The paper aims at identifying accounting complexities in business combinations. The paper provides three key challenges in the lead of possible solutions to set a successful business combination. Moreover, the paper provides analysis of key business combination measures in the light of IFRS principles. In addition to this, the paper differentiates identified IFRS rules with GAAP and highlights the possible impact of US firms, which have adopted IFRS system of reporting. Finally, the paper provides conclusion on the overall understanding of IFRS and business combinations in an international atmosphere.

Discussion

Task 1 - Challenges for a Successful Business Combination

Brand Acquisition

When two companies enter into business combination activity, the issue may arise regarding brand acquisition. Brand acquisition refers to an outright sale of a particular company brand to the buying or acquiring entity. However, in case of business combination, companies may face challenge about whether the business combination will include purchase of all branches of the acquired entity or not (Gross, 2012).



Acquired Assets' Fair Value

During business combination process, involved companies may come across the challenge of measuring all acquired assets and liabilities at their fair market value. The fair market value has to be identified at the date of acquisition, which might involve complex process of value identification. For instance, if assets are divided into premises, borrowing and securities, separate treatment will be given to each entity based on the applicable accounting principles (Gross, 2012).

Early Lease Termination Fees

It is the amount of fee paid by acquired bank to terminate the lease program on building before the process of acquisition. In case of leased building, companies involved in the business combination process may come across the issue of determining accounting principle clarity on whether to treat this fees as an expense or not. The challenge may ...