" SIC-28: Business Combinations – 'Date of Exchange' and Fair Value of Equity Instruments (Superseded)"
Bilal Ahmad
Fractional CFO for Startups | Financial Modeling to Drive Growth and Profitability | Empowering Founders with Data-Driven Financial Leadership
SIC-28 "Business Combinations – 'Date of Exchange' and Fair Value of Equity Instruments" was an interpretation under the International Financial Reporting Standards (IFRS) that provided guidance on determining the date of exchange and the fair value of equity instruments in business combinations. This interpretation was crucial in situations where business combinations involved issuing equity instruments, as it helped in accurately valuing these transactions.
Key aspects of SIC-28 included:
- Date of Exchange: SIC-28 provided guidance on identifying the 'date of exchange' in a business combination. This date was essential for measuring the cost of the business combination, particularly when equity instruments were involved.
- Fair Value of Equity Instruments: The interpretation also addressed how to determine the fair value of equity instruments issued as part of the business combination. This was critical in establishing the acquisition cost.
- Volatility in Equity Values: SIC-28 acknowledged the volatility that can be associated with equity values, providing a framework for dealing with such fluctuations during business combinations.
However, SIC-28 was superseded by revisions to the IFRS standards, particularly by IFRS 3 "Business Combinations." IFRS 3 brought about significant changes in the accounting for business combinations, including the treatment of equity instruments issued in these transactions.
The key developments following the supersession of SIC-28 include:
- Revised Approach to Business Combinations: IFRS 3 introduced a single, comprehensive method for accounting for business combinations, focusing on the acquisition model.
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- Fair Value Measurement: The standard emphasized the use of fair value measurements for assets acquired, liabilities assumed, and any non-controlling interest in the acquiree.
- Acquisition Date Determination: IFRS 3 provides specific guidance on determining the acquisition date, which is crucial for measuring the fair value of the assets acquired and liabilities assumed.
- Enhanced Transparency and Comparability: The changes aimed to improve the relevance, reliability, and comparability of the information that an entity provides in its financial reports about business combinations and their effects.
The replacement of SIC-28 with IFRS 3 reflects the IFRS's ongoing efforts to develop standards that provide clearer and more consistent guidelines for complex accounting issues like business combinations. These changes are intended to ensure that such transactions are measured and reported in a manner that accurately reflects their economic substance.
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