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IFRS Advisory

IFRS  ADVISORY

IFRS rules are becoming increasingly complex and extensive. Detailed knowledge of the relevant standards and in-depth corporate finance know-how are indispensable, especially when accounting for mergers, investments and financial instruments. As an independent expert firm with long-standing experience, IFBC specialises in the following aspects of IFRS implementation:

According to IFRS 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:

Defining the PPA strategy

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.

Analysing the transaction

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.

Performing the Purchase Price Allocation

Implementing the Purchase Price Allocation basically involves the following steps:

  • revaluation of the existing assets and liabilities (fair value determination)
  • identification of the new intangible assets (according to the identification criteria under IAS 38)
  • valuation of the intangible assets (according to market value approach, income approach and cost approach)
  • identification and allocation of goodwill (residual purchase price for the target and fair value of all net assets)

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.

Disclosure

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:

Reviewing the impairment model used according to the IFRS rules and current best practices

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.

Designing and implementing customised IFRS-compliant models enabling a standardised procedure

Setting up standardised processes and models for impairment testing can ensure both efficient performance and a high degree of reliability in operational implementation.

Determining the Impairment WACC

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.

YOUR CONTACT PERSONS

Dr. Thomas Vettiger, Managing Partner

thomas.vettiger@ifbc.ch

Christian Hirzel, Partner

christian.hirzel@ifbc.ch

OUR PROJECTS

Other clients
Review of impairment model and impairment WACC

IFBC was engaged by Swisscom AG to review the determination of the impairment WACC of Fastweb S.p.A. as well as the existing impairment model, taking into account current knowledge and best practice. A specific focus was in particular on the quantification of a country risk premium and the handling of IFRS 16 in the context of the impairment test.

Swisscom is the leading telecom provider in Switzerland.

Determination of the Impairment WACC and review of the existing impairment model

IFBC was mandated by Rieter to conduct a review of the existing model for the annual goodwill impairment testing and to elaborate corresponding recommendations for further development. Simultaneously, a cost of capital concept was developed for Rieter. This includes the calculation principles for the individual cost of capital parameters as well as the handling of different currencies and country risks as a basis for the implementation of the goodwill impairment tests.

Rieter is a globally leading supplier of systems for manufacturing yarn from staple fibers in spinning mills.

Implementation of the Purchase Price Allocation of Swissport in accordance with IFRS

In the context of the acquisition of Swissport by a group of financial investors, IFBC was mandated to carry out the purchase price allocation in accordance with the requirements of IFRS and considering best practice. The results of the purchase price allocation were summarized in an expert opinion for the attention of the auditors.

Swissport International Ltd. is a globally leading provider of aviation ground handling and cargo services with a presence at around 300 airports worldwide.

Valuation of employee stock option in the context of the accounting and reporting standard transition to IFRS

In the context of the transition of the accounting and reporting standard to IFRS, IFBC was engaged by BioVersys to value the employee stock options issued in the past, considering the requirements of IFRS 2 and best practice. The results were summarized in a valuation report for the attention of the auditors.

BioVersys AG is a Swiss clinical stage biotechnology firm, focusing on research and development in the field of drug-resistant bacterial infections.

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