EFRAG comment letter on Business Combinations

04 April 2003

The European Financial Reporting Advisory Group (EFRAG) has completed its due process regarding the IASB Exposure draft ED 3 Business Combinations and Proposed Amendments to IAS 36 and IAS 38

In a letter to the chairman of the International Accounting Standards Board (IASB) Sir David Tweedy, EFRAG points out its concern that with regard to the elimination of pooling of interests accounting, there are a number of borderline cases in which it is difficult to decide which entity is the acquirer and which the acquired EFRAG therefore belives that an alternative accounting method may be more appropriate in such cases.

EFRAG has also serious concerns about the intermingling of internally generated goodwill as well as the reliability and complexity of the proposed impairment test. Where future cash flows are reasonably predictable, EFRAG argues, the impairment test may be relied upon to produce useful information. But in developing and more volatile industries such as “high tech” and telecom industries, future cash flows are less predictable.

Letter

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