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Introduction
Questionnaire for Users of General Purpose Financial Statements: Initial Accounting for Intangible Assets Acquired in Business Combinations.
Introduction This questionnaire seeks to gather information for the purposes of a post-implementation review of the principles in IFRS 3 Business Combinations and IAS 38 Intangible Assets with respect to the initial accounting for intangible assets acquired in business combinations. The primary objective is to identify any improvements that could be made to these principles.
To this end, the questionnaire seeks information on your experiences in using information prepared in accordance with particular aspects of the original version of IFRS 3 (June 2004) and/or the revised version if IFRS 3 (March 2008) or similar GAAP. The Appendix to this questionnaire provides a summary and extracts of the main requirements that are the subject of this questionnaire. While some jurisdictions, such as the United States, have not adopted IFRS 3 or IAS 38, or only recently adopted them (Canada), their domestic requirements have been similar to the principles in IFRS 3 and IAS 38.
We anticipate the questionnaire will take about 20 – 30 minutes to complete. For a preview of the questionnaire, click here. Note that the preview has been provided to assist you in preparing your response in advance. In order to formally complete the questionnaire, you will need to enter your responses directly into this online survey.
Please submit by 15 December 2011.
Confidentiality We intent to provide a report on our findings to the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) as input to any future review they might conduct in relation to IFRS 3 and IAS 38. Your responses will be treated confidentially and will not be used for any purpose together than the post-implementation review. Accordingly, any information you provide in respect of any actual or perceived non-compliance with accounting standards:
(a) will not be used in any way that is inconsistent with the purpose of this questionnaire; and
(b) will not be attributed to you or any organisation affiliated with you.
If you have any queries regarding this questionnaire, please contact us via email ([email protected] ).
Thank you for participating in this questionnaire.
Kevin Stevenson – AASB Chairman Angus Thomson – AASB Director of Research Robert Keys – AASB Technical Director COPYRIGHT © 2011 Commonwealth of Australia This questionnaire also contains IFRS Foundation copyright material. Further information and requests for authorisation to reproduce this material should be addressed to the IFRS Foundation at www.ifrs.org .
*Respondent contact details:
We ask for your contact details in the event that we need clarification in relation to your responses to this questionnaire. Your contact details will not be used for any other purpose.
Name:*
Position or Title:*
Organisation:*
Contact phone number:*
Contact e-mail address:*
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BACKGROUND QUESTIONS
1. Do you have experience in examining the financial statements of a for-profit entity that reflect the initial accounting for intangible assets acquired in business combinations in accordance with IFRS 3 and IAS 38 or similar GAAP?
Yes – Go to Question 3
No – Go to Question 2
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2. If you answered ‘No’ to Question 1, do you have any comments, from a user’s perspective, about the usefulness of the information produced in accordance with IFRS 3 and IAS 38 or similar GAAP for the initial accounting for intangible assets acquired in business combinations? If you are commenting on standards other than IFR3 and IAS 38, please also specify which standards you are referring to.
Please also describe your role as a user of the general purpose financial statements if you answered ‘No’ to Question 1.
Existing/potential equity investor
Existing/potential lender
‘Buy-side’ analyst/money manger
‘Sell-side’ analyst/broker
Provider of goods/services
Regulatory agency
Rating agency
Other – Please specify
THANK YOU
If you answered ‘No’ to Question 1, this completes your involvement in the questionnaire. Press ‘Next’ below to go to the next page and submit your survey.
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Question 3 – 7 seek background information about your experiences, during the last three years, in using general purpose financial statements that reflect the initial accounting for intangible assets acquired in business combinations.
3. Which of the following best describes your role as a user of general purpose financial statements?
Existing/potential equity investor
Existing/potential lender
‘Buy-side’ analyst/money manger
‘Sell-side’ analyst/broker
Provider of goods/services
Regulatory agency
Rating agency
Other – Please specify
[Prepares of general purpose financial statements were invited to complete a separate questionnaire over the period from 22 February 2011 to 15 July 2011.]
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4. How many sets of financial statements of entities involved as acquirers in material business combinations have you examined in the last three years?
One
Between two and five
More than five
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5. For the three most significant business combinations that have been reflected in the financial statements of the acquirer entities that you have examined in the last three years, please provide details of:
(a) the year of acquisition (b) the industry to which the acquirers belong (c) the county/countries in which the acquirers are located.
Year of
Acquisition Industry of Acquirer
Entity County/Countries of
Acquirer Entity
# 1 Business Combination
# 2 Business Combination
# 3 Business Combination
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6. Which of the following accounting standard(s) was applied in respect of each of the business combinations that you identified in Question 5 above?
Accounting Standards (Please refer to the Appendix of this questionnaire for details)
#1 Business Combination
#2 Business Combination
# 3 Business Combination
IFRS 3 (2008) – A revised version of IFRS 3 (2004) Business Combinations, which became effective for reporting period beginning on or after 1 July 2009
IFRS 3 (2004) – Original IFRS 3 Business Combinations, issued in March 2004
SFAS 141 – Business Combinations under U.S. GAAP, issued in June 2001
CICA 1581 – CICA Handbook – Accounting, Section 1581, Business Combinations, replaced by CICA 1582 in January 2009
CICA 1582 – Revised version of Business Combinations, which replaced CICA 1581 in January 2009
Not sure
Other – please specify.
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7. With regard to the acquirer entities identified in Question 5, please identify your purpose of using the information reflecting the initial accounting for intangible assets acquired in business combinations?
To buy/hold equity securities
To grant loans
To provide analytical advice
To provide goods/services
To undertake regulatory activities
To assign credit ratings
Other purpose(s) for using the information – please explain
If you did not find the information reflecting the initial accounting for intangible assets acquired in business combinations useful, please explain the reason(s). .
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Even though, as a user, you might only focus on the matters addressed separately in this survey as a single issue, the remainder of this questionnaire is structured under separate sections relating to definition, recognition, measurement and disclosure, following the structure of IFRS 3/IAS 38 or similar GAAP. This questionnaire is structured in this way to help identify potential improvements to particular parts of IFRS 3/ IAS 38 or similar GAAP.
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SECTION 1: INITIALLY IDENTIFYING AND DESCRIBING INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
Section 1 (Questions 8 – 10) seeks information about your experiences / opinions in relation to the financial statements of acquirer entities you have examined in the last three years that you have applied IFRS 3/IAS 38 or similar GAAP to initially identify and describe intangible assets acquired in business combinations.
8. The definition of ‘intangible asset’ under IFRS 3/IAS 38 requires an intangible asset to be identifiable (see the identifiability criteria in the textbox immediately below) for it to be distinguished from goodwill. Please specify which of the following statements below best reflects your opinion on the identifiability criteria and provide reason(s) for your answer?
Identifiability Criteria (Extract paragraph 12 of IAS 38)
An intangible asset is identifiable if it either:
• is separable, i.e. is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or
• arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
The criteria are appropriate
The criteria result in too many intangible assets being identified, some or all of which would be more appropriately identified as goodwill.
The criteria result in too few intangible assets being identified separately from goodwill
No, I think the level of description that combines intangible assets and goodwill would be sufficient
Please provide reason(s) for your answer in the box below
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SECTION 1: INITIALLY IDENTIFYING AND DESCRIBING INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
9. Which of the following types of intangible assets (see paragraphs IE16-IE44 of IFRS 3, on pages 6 – 13 of the Appendix to this questionnaire) acquired in the business combinations listed in Question 5 have been initially identified and described in the financial reports of the acquirer entities you have examined?
Marketing-related intangible assets
- Trademarks, trade names, service marks, collective marks and certification marks - Internet domain names - Trade dress (unique colour, shape or package design) - Newspaper mastheads - Non-competition agreements
Customer-related intangible assets
- Customer lists - Order or production backlog - Customer contracts and the related customer relationships - Non-contractual customer relationships
Artistic-related intangible assets:
- Plays, operas and ballets - Books, magazines, newspapers and other literary works - Musical works such as compositions, song lyrics and advertising jingles - Pictures and photographs - Video and audio-visual material, including motion pictures or films, music videos and television programmes
Contract-based intangible assets:
- Licensing, royalty and standstill agreements - Advertising, construction, management, service or supply contracts - Lease agreements (whether the acquire is the lessee or the lessor) - Construction permits - Franchise agreements - Operating and broadcasting rights - Use rights such as drilling, water, air, timber-cutting and route authorities - Servicing contracts such as mortgage servicing contracts - Employment contracts
Technology-based intangible assets:
- Patented technology - Computer software and mask works - Unpatented technology - Databases, including title plants - Trade secrets, such as secret formulas, processes or recipes
Other – please describe
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SECTION 1: INITIALLY IDENTIFYING AND DESCRIBING INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
10. From your general experience, do you think the category-level (e.g. marketing-related intangible asset) descriptions of intangible assets acquired in business combinations, whether presented in the statement of financial position or disclosed in the notes, are sufficient?
Yes, category-level descriptions are sufficient
No, I would prefer more detailed sub-category level descriptions, e.g. trademarks, licenses etc.
No, I think the higher general/class-level descriptions, e.g. ‘intangible assets’, would be sufficient
No, I think the level of description that combines intangible assets and goodwill would be sufficient
Other opinion
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SECTION 2: INITIAL RECOGNITION OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
Section 2 (Questions 11 - 12) seeks information about your experiences/opinions in relation to the financial statements of acquirer entities you have examined in the last three years that have applied IFRS 3/IAS 38 or similar GAAP to initially recognise intangible assets acquired in business combinations.
11. From your experience, do you think the application of the initial recognition criteria (see textbox immediately below) of intangible assets acquired in business combinations results in useful information? Please provide any additional information with your answer in the box below.
Recognition Criteria (Extract paragraph 21 of IAS 38)
An intangible asset shall be recognised if, and only if:
• it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
• the cost of the asset can be measured reliably.
Additional guidance (see paragraph 33 of IAS 38) is included to clarify that:
• the probability recognition criterion is always considered to be satisfied for intangible assets that are acquired in a business combination; and
• in accordance with IFRS 3 Business Combination, if an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date, and that fair value of an intangible asset acquired in a business combination can be measured with sufficient reliability to be recognised separately from goodwill.
Yes, I think the initial recognition criteria result in the appropriate recognition of intangible assets
No, I think the probability recognition criterion in paragraph 33 of IAS 38 is inappropriate
No, I think the reliable measurement criterion in paragraph 33 of IAS 38 is inappropriate [You should answer ‘No’ twice if you think both criteria are inappropriate]
If you answer ‘No’, please explain the reason (s) and specify what you think the initial recognition criteria should be.
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SECTION 2: INITIAL RECOGNITION OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
12. From your experience, do you think the application of the initial recognition criteria (see pages 1 and 2 of the Appendix to this questionnaire) in IFRS 3 and IAS 38 or similar GAAP in relation to intangible assets acquired in business combinations results in comparable information across acquirer entities?
Yes
No – please explain the reason(s) why you think so.
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SECTION 3: INITIAL MEASUREMENT OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
Section 3 (Questions 13 - 16) seeks information about your experiences/opinions in relation to the financial statements of acquirer entities you have examined in the last three years that have applied IFRS 3/IAS 38 or similar GAAP to initially measure intangible assets acquired in business combinations.
13. Do you consider that initial measurement of intangible assets acquired in business combinations at fair value, as required by IFRS 3 (see textbox immediately below), provides useful information for your decision making?
Measurement Principle (Extract paragraph 18 of IFRS 3) The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values.
Yes
No – Please state your preferred measurement basis and the reason(s) for your preference(s).
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SECTION 3: INITIAL MEASUREMENT OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
14. Generally, which of the following fair value measurement techniques have you seen applied in the initial measurement of intangible assets acquired in business combinations (identified in Question 5) included in financial statements? (You may identify more than one technique.)
Present value/discounted cash flow technique
Relief-from-royalty/royalty savings technique
Premium profits method/incremental income technique
Excess earnings technique
Comparison methods such as the market prices for the same, or similar, assets
Depreciated replacement cost technique
Other – please specify
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SECTION 3: INITIAL MEASUREMENT OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
15. Do you consider that some fair value measurement techniques identified in Question 14 provide more useful information for particular types of intangible assets than other fair value measurement techniques?
No
Yes – Please explain:
1. the fair value measurement technique(s) you consider provides the most useful information for particular types of intangible asset; and
2. the reason for each of your answers in relation to (1) above.
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SECTION 3: INITIAL MEASUREMENT OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
16. What types of intangible assets have you seen initially measured in accordance with each of the fair value measurement techniques you have identified in Question 14 above?
Present value/
discounted cash flow technique
Relief from
royalty / royalty savings
technique
Premium profits method
incremental income
technique
Excess earnings
technique
Comparison technique
Depreciated replacement
cost technique
Other – please specify
Marketing-related intangible assets, for example:
- Trademarks, trade names, service marks, collective marks and certification marks - Internet domain names - Trade dress - Newspaper mastheads -Non-competition agreements
Customer-related intangible assets, for example:
- Customer lists - Order or production backlog -Customer contracts and the related customer relationships -Non-contractual customer relationships
20
Present value/
discounted cash flow technique
Relief from
royalty / royalty savings
technique
Premium profits method
incremental income
technique
Excess earnings
technique
Comparison technique
Depreciated replacement
cost technique
Other – please specify
Artistic-related intangible assets, for example:
-Plays, operas and ballets -Books, magazines, newspapers and other literary works -Musical works such as compositions, song lyrics and advertising jingles - Pictures and photographs -Video and audio visual material, including motion pictures or films, music videos and television programmes
Contract-based intangible assets, for example:
-Licensing, royalty and standstill agreements -Advertising, construction, management, service or supply contracts -Lease agreements (whether the acquiree is the lessee or the lessor) -Construction permits -Franchise agreements -Operating and broadcasting rights -Use rights such as drilling, water, air, timber-cutting, and route authorities
21
Present value/
discounted cash flow technique
Relief from
royalty / royalty savings
technique
Premium profits method
incremental income
technique
Excess earnings
technique
Comparison technique
Depreciated replacement
cost technique
Other – please specify
Technology-based intangible assets, for example:
-Patented technology -Computer software and mask works -unpatented technology -Databases, including title plants -Trade secrets, such as secret formulas, processes or recipes
Other
Other – please describe
22
SECTION 4: INITIAL DISCLOSURE OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
Section 4 (Questions 17 - 19) seeks information about your experiences opinions in relation to the financial statements of acquirer entities you have examined in the last three years that have applied IFRS 3/IAS 38 or similar GAAP to initially disclose intangible assets acquired in business combinations.
17. Based on your experience, do you think sufficient information is disclosed in the notes to financial statements in relation to the assumptions and bases applied in the initial fair value measurement of intangible assets acquired in business combinations?
Yes
No – Please specify the type of information you would like to be disclosed.
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SECTION 4: INITIAL DISCLOSURE OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
18. If an intangible asset acquired in a business combination does not meet the relevant identification criteria or recognition criteria as stated in IFRS 3 and IAS 38, paragraph B64 (e) of IFRS 3 (see textbox immediately below) requires the acquirer to disclose a qualitative description of the intangible asset. Have you ever encountered such a qualitative description of the intangible assets in the financial reports you have examined?
Extract from paragraph B64(e) of IFRS 3
…The acquirer shall disclose the following information for each business combination that occurs during the reporting period:
…
(e) a qualitative description of the factors that make up the goodwill recognised, such as expected synergies from combining operations of the acquiree and the acquirer, intangible assets that do not qualify for separate recognition or other factors.
…
No, I have never encountered a qualitative description of the intangible assets in the
financial statements I examined.
Yes – Please explain to what extent you think the qualitative description provides useful information about the intangible assets acquired in business combinations. Please give example(s) if available.
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SECTION 4: INITIAL DISCLOSURE OF INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
19. From your experience, do you consider the presentation and disclosure criteria (see paragraphs 118 and 199 of IAS 38 on page 13 of the Appendix to this questionnaire) of intangible assets acquired in business combinations provide sufficient information?
Yes
No – Please state any suggestions you might have for improving the presentation and disclosure criteria.
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GENERAL QUESTIONS IN RELATION TO THE INTIAL ACCOUNTING FOR INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
Questions 20 and 21 seek your general experiences/opinions on the principles under IFRS 3/IAS 38 or similar GAAP in relation to the initial accounting for intangible assets acquired in business combinations.
20. Apart from any issues you have identified in response to any of the questions in this questionnaire, have you experienced any practical/implication issues in using the information reflecting the initial accounting for intangible assets acquired in business combinations under IFRS 3 and IAS 38 or similar GAAP?
No
Yes – Please explain:
1. the nature of the practical/implementation issue(s); and
2. how the practical/implementation issue(s) might be overcome.
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GENERAL QUESTIONS IN RELATION TO THE INTIAL ACCOUNTING FOR INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS
21. We have limited the size of this questionnaire in an attempt to maximise the response rate. Depending on the responses we receive to particular questions, we may want to pose some follow-up questions to respondents. Are you willing to participate in any follow-up review?
Yes
No
THANK YOU
This completes your involvement in the questionnaire. Thank you for your involvement.
.
