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According to IRFS 3 “Business Combinations”, the purchase price paid for an acquisition must be allocated to the identifiable assets and liabilities according to the applicable accounting rules. This results in positive or negative goodwill at the acquisition date. There are number of problems involved in practical applications of the Purchase Price Allocation (“PPA”).
Thanks to the large number of PPAs we have handled and our long-standing collaboration with audit firms, we have a great wealth of experience to share with our customers to meet their specific needs. We divide the process into four phases:
Due to the possibilities of amortisation, the values of the newly identified intangible assets and goodwill have a direct impact on the company’s future financial performance. In order to establish an IFRS-compliant PPA strategy, the implications of the purchase price allocation have to be estimated and evaluated at an early stage.
The first step in analysing a transaction is to determine the relevant purchase price for the PPA. We analyse the transaction in detail (including earn-out clauses and purchase and disposal rights) and measure the transaction price according to the relevant IFRS rules.
Implementing the Purchase Price Allocation basically involves the following steps:
Our report to decision makers includes a detailed and easy to understand account of the valuations and of the resulting carrying amounts of the intangible asset and goodwill.
IFRS 3 requires compliance with certain required disclosures to enable the company’s stakeholders (especially the investors & creditors) to assess the financial impact of a business combination. We know both the minimum requirements and best practices.
According to IAS 36, the goodwill resulting from a transaction and all other intangible assets with indefinite lifetime must be tested for impairment each year and whenever certain “Triggering Events” occur. IFBC can help you with the following:
The impairment model should be periodically reviewed to ensure IFRS-compliance and the quality and topicality of the data used (especially the cost of capital). With our standardised method, we are able to efficiently check the impairment testing for compliance with the IFRS and best practices and to identify any needs for adjustment of the processes, models and valuation parameters.
Setting up standardised processes and models for impairment testing can ensure both efficient performance and a high degree of reliability in operational implementation.
Since the WACC (Weighted Average Cost of Capital) is of vital importance in corporate finance management, such figures should be summarized in a comprehensive WACC concept covering the different fields of application (including CAPEX, Acquisitions, Performance Management and IFRS). The WACC used for impairment testing must comply with both IAS 36 and Corporate Finance principles.
Share-based payments are used by many companies, especially by listed corporations. IFRS 2 gives clear guidelines for accounting for such payment instruments. The valuation method and the accounting treatment, for example, are determined by the chosen method of settlement (shares or cash). When designing an employee profit-sharing plan in accordance with these regulations, it is therefore necessary to analyse the implications for measurement and recognition. We assist our customers with designing variable payment instruments and with their periodic valuation.
IFRS accounting for financial instruments involves complex valuation issues, especially for the valuation of derivatives, convertible bonds and warrant bonds. The relevant standards IAS 32 and IAS 39, and the new IFRS 7 and IFRS 9 have been undergoing constant changes and updates for quite some time now and their practical applications are complex. Since financial instruments must be periodically revalued at the reporting dates, we recommend implementing a standardised measurement process. IFBC is a specialist in such issues, among others.
IFBC was engaged by Die Schweizerische Post to review and further develop the model for the annual goodwill impairment tests and the correspondingly determined cost of capital. The key component of the cost of capital assessment was focusing on the alignment with the cost of capital concept which was previously developed in collaboration with IFBC in the context of a value-based performance measurement.
Die Schweizerische Post is Switzerland’s national postal provider. In addition to traditional postal services, the group provides logistic, transport, communication as well as retail banking services.
IFBC was engaged by BLS to develop a standardised impairment tool which complies with the requirements of Swiss GAAP FER and reflects enterprise valuation best practice. In particular, the focus was on the correct consideration of an investment cycle lasting up to 20 years as well as the development of forecast and scenario functionalities. In addition, a cost of capital concept for BLS Schifffahrt was developed.
BLS connects the greater Bern area with six other cantons through an integrated public transport network on rails, roads and water. Today, BLS is Switzerland’s strongest independent private railway.
Under IAS 36, Swisscom is required to regularly test the goodwill of its Italian subsidiary Fastweb for impairment. Within the regular impairment test it has become best practice to consider country risk premiums in the cost of capital of cash-generating units. IFBC was mandated by Swisscom to develop a method for determining Fastweb's Country Risk Premium and to calculate the current value. The reason for Swisscom to award the contract to IFBC was among others the developments on the financial markets during the financial crisis in general and of the yields and credit spreads of Italian government bonds in particular.
Swisscom is the leading telecom-provider in Switzerland.
In 2018, Swissport acquired Aerocare, the largest provider of ground handling services in Australia/New Zealand. IFBC was engaged to perform the Purchase Price Allocation in accordance with IFRS 3 and to summarise the results in an independent expert opinion for the attention of the auditor.
Swissport International Ltd. provides ground handling and cargo services in over 180 airports worldwide.