Lela Pumphrey
Professor, Idaho State University, USA.
Cecilia Lambert
Associate Professor, Zayed University, UAE.
Christopher Lambert
Professor & Director, Zayed University, UAE.Recognition of Goodwill under IFRS 3
Our line of research involves recognition of goodwill in mergers
and acquisitions. International Financial Reporting Standard 3 (IFRS
3), “Business Combinations”, issued in 2004 and revised 2009,
eliminated pooling-of-interest as a means of recognizing a business
combination. It also eliminated amortization of goodwill and required
annual testing of recorded goodwill for impairment. These were major
changes in accounting for business combinations and their effects. The
core principle of this standard was to require companies to “disclose(s)
information that enables users to evaluate the nature and financial
effects of the acquisition” [IFRS 3, par IN5]. “The objective of this IFRS
is to improve the relevance, reliability and comparability of the
information that a reporting entity provides in its financial statement
about a business combination and its effects.” [IFRS 3, par 1] To do this,
the standard establishes principles and requirements for how the
acquirer, “recognises and measures the goodwill acquired in the
business combination or a gain from a bargain purchase,” [IFRS 3, par
1]. Our research provides insight into how IFRS 3 has affected the
quality of information presented. Our research presents examples of
companies involved in international M&As and analyzes the
information presented.