Commentary on the IASB's Exposure Draft on Business Combinations

The Financial Accounting Standards Committee of the American Accounting Association (Committee) views the IASB (Board) Exposure Draft on Business Combinations (ED) as flawed, primarily due to its lack of an economic description of a business combination. The Board could eliminate the ED's scope exceptions if it defined transactions within its scope as economic, rather than reporting, events. In particular, the ED covers only transactions in which one firm acquires control over another, and it is suggested that the ED should define the economic transaction in terms of control. The Committee proposes that the ED eliminate the inconsistency between the IASB Framework and the ED's guidance regarding recognition of contingent liabilities in a business combination at fair value. The Committee endorses the ED's disclosure provisions, and believes these will aid investors and analysts in assessing the economic consequences of business combinations.