Amendments To IFRS 3

Amendments to IFRS 3
- Reference to the
Conceptual Framework
Issue 169 / May 2020
IFRS Developments
Background
 InMay 2020, the International Accounting Standards Board (IASB or Board) issued A
mendments to IFRS 3 Business Combinations - Reference to the Conceptual Frame
work.
 The amendments are intended to replace a reference to the Framework for the Prep
aration and Presentation of Financial Statements, issued in 1989 (Framework), with
a reference to the Conceptual Framework for Financial Reporting issued in March 20
18 (2018 Conceptual Framework) without significantly changing its requirements.
 In addition, the Board added an exception to the recognition principle of IFRS 3 to av

oid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent li
abilities and it clarrified existing guidance in IFRS 3 for contingent assets.
Recognition exception for liabilities and contingent
liabilities within the scope of IAS 37 or IFRIC 21
 assets and liabilities recognised in

a business combination must meet
the respective definitions of assets
and liabilities in the Framework
This could give rise to ‘day 2’

gains or losses, when some of
 the Board also updated most of the these assets or liabilities might
existing Framework references to not qualify for recognition under
the 2018 Conceptual Framework in other applicable IFRS standards
IFRS standards. that are applied subsequent to the
acquisition date.
 the changes to the definitions of

assets and liabilities in the 2018
Conceptual Framework could
increase the population of assets
and liabilities recognized in a
business combination.
 an acquirer might
recognise a liability at
the acquisition date  A ‘day 2’ gain would be
that would not be recognized immediately
recognised after the acquisition date.  when applying the 2018 Conceptual Framework, an
subsequently under entity recognizes a liability when it conducts an earlier
IFRIC 21. activity, if:
a. Conducting that earlier activity means it may
have to pay a levy that it would not otherwise have had to
pay; and
b. It has no practical ability to avoid the later activity

that will trigger payment of
the levy
 Further, IFRIC 21 is an interpretation of

IAS 37. Therefore, the problem of ‘day 2’ gains
could also arise for other obligations within the
 The exception requires entities to apply
scope of IAS 37 that are conditional on a future
the criteria in IAS 37 or IFRIC 21,
activity of the entity.
respectively, to determine whether a present
obligation exists at the acquisition date. The
 To avoid this problem, IFRS 3 was amended to
exception refers to both IFRIC 21 and IAS
include an exception from the requirements of
37 as IFRIC 21 also applies to levies whose
paragraph 11 of IFRS 3 for liabilities and
timing and amount are certain and so are
contingent liabilities that would be within the
outside the scope of IAS 37.
scope of IAS 37 or IFRIC 21, if these are
incurred separately, rather than assumed in a
business combination.
Clarification of the guidance for contingent assets
IFRS 3 prohibits the recognition of contingent assets acquired in a business

combination. This prohibition was not, however, explicitly stated in IFRS 3, although it
could be inferred from the IFRS 3 recognition principle, and is discussed in paragraph
BC276 of the Basis for Conclusion (the Basis) to the standard.
The Board, therefore, decided to add a new paragraph to IFRS 3 to clarify that
contingent assets do not qualify for recognition at the acquisition date. This new
paragraph was added under the ‘Exceptions to the recognition principle’ section
of the standard.
Transition and effective date
 The amendments to IFRS 3 are required to be applied to
business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning
on or after 1 January 2022. Earlier application is permitted if, at
the same time or earlier, an entity also applies all of the
amendments contained in the Amendments to References to the
Conceptual Framework in IFRS Standards (March 2018), which
was issued at the same time as the 2018 Conceptual
Framework.
THANKS
Source:
https://assets.ey.com/content/dam/ey-sites/ey-
com/en_gl/topics/ifrs/ey-devel169-ifrs-3-conceptual-frwk-
may-2020.
Property, Plant and Equipment:
Proceeds before Intended Use
AMENDMENTS TO IAS 16
IASB
The International Accounting Standards
Board (IASB) has published 'Property, Plant
and Equipment — Proceeds before Intended
Use (Amendments to IAS 16)' regarding
proceeds from selling items produced while
bringing an asset into the location and
condition necessary for it to be capable of
operating in the manner intended by
management.
Changes
Property, Plant and Equipment — Proceeds before Intended
Use (Amendments to IAS 16) amends the standard to prohibit
deducting from the cost of an item of property, plant and
equipment any proceeds from selling items produced while
bringing that asset to the location and condition necessary for
it to be capable of operating in the manner intended by
management. Instead, an entity recognises the proceeds from
selling such items, and the cost of producing those items, in
profit or loss.
Source:
• https://www.iasplus.com/en/news/2020/05/ias-16
• http://gtw3.grantthornton.in/assets/A/Ameendments-
to-IAS-16-PPE.pdf
THANKS
Reported by: Amor M. Capangpangan

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 In addition, the Board added an exception to the recognition principle of IFRS 3 to av

 assets and liabilities recognised in

This could give rise to ‘day 2’

 the changes to the definitions of

b. It has no practical ability to avoid the later activity

 Further, IFRIC 21 is an interpretation of

IFRS 3 prohibits the recognition of contingent assets acquired in a business

Reported by: Amor M. Capangpangan

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