Reference to the Conceptual Framework (Amendments to IFRS 3)

Project objective

The objective of the project is to update a reference in IFRS 3 Business Combinations to the Framework for the Preparation and Presentation of Financial Statements to the Conceptual Framework for Financial Reporting.

Project history 

In March 2018, the IASB issued a revised Conceptual Framework for Financial Reporting and Amendments to references to the Conceptual Framework in IFRS Standards. The latter updated some of the references and quotations in IFRS Standards and Interpretations so that they refer to the revised Conceptual Framework or specify the version of the Conceptual Framework to which they refer. 

Some references in IFRS Standards were not updated to refer to the revised Conceptual Framework. These included references that specify what material the IFRS Interpretations Committee (or its predecessors) used when interpreting particular requirements in IFRS Standards. In those cases, it is specified which version of the Conceptual Framework was used to support a particular interpretation made in the past. 

In addition, a reference in IFRS 3 Business Combinations was not updated and the use of a previous version of the Conceptual Framework was required when developing an accounting policy for specified assets (regulatory deferral accounts) which were not covered by an (endorsed) Standard.

The reason why the reference in IFRS 3 was not updated was that assessed that it could, in some cases, have resulted in entities reporting a gain or a loss without any change in the underlying economic realities.

The Basis for Conclusions accompanying the Amendments to references to the Conceptual Framework in IFRS Standards stated that the IASB would conduct an analysis of the possible consequences of referring to the revised definitions of an asset and a liability. Once that analysis would be complete, the IASB intended to amend IFRS 3 to replace the reference to the previous version of the Conceptual Framework in a way that avoids unintended consequences.

An exposure draft was issued in May 2019. It proposed to:

• Update IFRS 3 so it refers to the 2018 Conceptual Framework instead of the 1989 Framework.
• Add to IFRS 3 an exception to its recognition principle. For liabilities and contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies if incurred separately, an acquirer should apply IAS 37 or IFRIC 21 respectively, instead of the Conceptual Framework, to identify the obligations it has assumed in a business combination.
• Add to IFRS 3 an explicit statement that an acquirer should not recognise contingent assets acquired in a business combination.

EFRAG issued its draft comment letter on 28 June 2019.

In its draft comment letter, EFRAG agreed with the proposals included in the exposure draft.

Comments were invited by 17 August 2019.

After considering the comments received, EFRAG submitted its comment letter to the IASB on 24 September 2019. In the comment letter, EFRAG agreed with the proposals included in the exposure draft.

On 14 May 2020, the IASB issued Reference to the Conceptual Framework (Amendments to IFRS 3), which should 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.

With some editorial changes, the Amendments were similar to the proposals of the exposure draft. However, the Amendments also delete paragraph BC125 from the Basis for Conclusions accompanying IFRS 3.

EFRAG issued its Draft Endorsement Advice on 24 June 2020. Inviting comments by 7 September 2020.

The comments received supported EFRAG's Draft Endorsement Advice, and on 23 October 2020, EFRAG recommended the European Commission to endorse the Amendments.

The Amendments were publised in the Official Journal of the European Union on 2 July 2021.