EFRAG Short Discussion Series - Presentation of reversal of acquisition step-ups

Project History

The EFRAG Short Discussion Series papers address topical and problematic issues with the aim of assisting the IASB in addressing cross-cutting dilemmas on financial reporting and stimulating debate among European constituents and beyond.

Presentation of acquisition step-ups

IFRS 3 Business combinations requires an acquirer to recognize the identified net assets of the acquiree at their fair value. As a consequence, the acquirer recognizes a 'step-up' over the carrying amounts in the acquiree's financial statements. When operating assets such as inventory are sold after the acquisition, the cost of goods sold includes the reversal of the 'step-ups'. Some argue that this affects the ability to predict the acquired business' ongoing contribution to the performance of the Group.

The use of fair value for measuring the identified net assets at acquisition date will be assessed in the context of the post-implementation review of IFRS 3. This Short Discussion paper investigates how the entity could present or disclose the effect of the reversal of the 'step-ups' to improve the users' understanding of the impact of the acquisition.

EFRAG Feedback Statement

In February 2015, EFRAG published a feedback statement of comments from constituents. In general, constituents considered that IFRS already allow sufficient flexibility to provide the information when it is considered to be relevant for understanding the effect of the business combination on the entity's performance.