9.2 IFRS 3 Business Combinations (March 2004)

IAS 22 Business Combinations permitted two methods of accounting the pooling of interests and the purchase method. Although IAS 22 restricted the use of pooling, analysts indicated that two methods impaired comparability and created incentives for structuring those transactions to achieve a particular accounting result.

This, combined with the prohibition of pooling by USA, Canada and Australia, prompted the IASB to seek harmonisation.

In addition, various jurisdictions dealt differently with goodwill, and IAS 22 permitted two methods of applying the purchase method benchmark (combination of fair value of acquirer's ownership interest and pre-acquisition carrying amounts for minority interests) or allowed alternative to measure all assets at fair value.

The IASB seeks to ensure that similar transactions are not accounted for in dissimilar ways, as this impairs their usefulness.

The IFRS was an attempt to improve the quality of and seek international convergence on accounting for business combinations, including:

• the method of accounting for business combinations;

• the initial measurement of identifiable net assets acquired;

• the recognition of liabilities for terminating the activities of an acquiree;

• the treatment of any excess of an acquirer's interest in fair values of identifiable net assets acquired;

• the accounting treatment for goodwill and intangible assets.