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ESMA calls for improvements in disclosures related to business combinations

Tuesday, 17th June, 2014: The European Securities and Markets Authority (ESMA) has published a report on the application of accounting requirements for business combinations in IFRS financial statements. 

The report, based on a review of the annual IFRS financial statements of 56 issuers in the European Union (EU), examines the consistency of how key requirements of IFRS 3 Business Combinations are applied and provides recommendations to issuers, and suggestions to the IASB, on areas where the usefulness and quality of the financial information could be improved.

The results of the review show that some good business combination disclosures were provided; however, ESMA identified certain areas where improvements are warranted in order to enhance the usefulness of the information.

ESMA urges issuers to provide disclosures tailored to the specific circumstances of transactions. In particular, ESMA believes issuers should further improve the quality of the information by:

(i) providing relevant information about the factors determining the amount of goodwill or reasons for bargain purchases;

(ii) providing more granular disclosures on the assets and liabilities recognised, where relevant;

(iii) applying consistent assumptions at the initial recognition and subsequent measurement of assets and liabilities; and

(iv) improving the information provided on the valuation techniques and assumptions used when measuring assets and liabilities at fair value.

IAASA is an active participant in the ESMA-sponsored European Enforcers’ Co-ordination Sessions (EECS). The objective of EECS is to coordinate European enforcement activities in order to increase convergence amongst European national accounting enforcers and contribute to fostering investor confidence.

The ESMA Report can be downloaded from the following link:

Review on the application of accounting requirements for business combinations in IFRS financial statements