IAS 22
Withdrawn
Business Combinations
Permitted both the purchase method and, in narrow circumstances, the pooling of interests method for business combinations, and permitted goodwill amortisation. Superseded by IFRS 3 Business Combinations.
Withdrawn Standard
IAS 22 (issued 1983, revised 1998) permitted both the purchase method and, in narrow circumstances, the pooling of interests (uniting of interests) method for business combinations, and permitted goodwill amortisation. It was superseded by IFRS 3 Business Combinations (2004), which mandated the acquisition method exclusively, abolished pooling of interests, and replaced goodwill amortisation with annual impairment testing.
It is retained here for historical reference. For current business combination accounting, always apply IFRS 3.
Current Standard
IFRS 3 Business Combinations 1
Conceptual Framework Linkage
A choice that undermined comparability
The Conceptual Framework's comparability objective is best served when economically similar transactions are accounted for consistently. IAS 22's genuine choice between the purchase method and pooling of interests – two methods producing materially different SOFP and SOPL outcomes for what could be economically similar acquisitions – was a significant comparability weakness that IFRS 3 later resolved by abolishing pooling of interests entirely.
HOW IAS 22 MAPPED TO THE FRAMEWORK
Comparability tension – allowing two fundamentally different accounting methods for business combinations meant economically similar deals could look very different in the financial statements, purely based on which method was elected/qualified Faithful representation of goodwill – IAS 22's mandatory amortisation of goodwill over its useful life (generally capped at a maximum period) reflected an assumption that goodwill's value systematically declines over time – a view IFRS 3 later rejected in favour of annual impairment testing without amortisation The pooling loophole – pooling of interests was widely criticised for enabling entities to avoid recognising fair value step-ups and goodwill entirely, since no new measurement basis was applied – a genuine departure from faithful representation of the transaction's economic substance
The elimination of pooling of interests, and the shift from goodwill amortisation to impairment-only testing, were the two most consequential reforms IFRS 3 introduced relative to IAS 22 – both directly improving faithful representation and comparability.
The two competing methods, compared
MethodCore mechanic
Purchase methodAcquirer identified; assets/liabilities fair valued; goodwill recognised as a residual
Pooling of interestsNo acquirer identified; assets/liabilities combined at existing book values; no goodwill recognised
Pooling was restricted to genuine "mergers of equals" meeting strict criteria – but was widely seen as too easily manipulated to qualify.
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Scope & Applicability (Historical)
What IAS 22 covered
IAS 22 applied to accounting for business combinations, including the recognition of goodwill arising, and the subsequent accounting for that goodwill (mandatory amortisation).
This general scope, and the underlying "business combination" concept, carried forward directly into IFRS 3 – only the accounting method changed, not the fundamental subject matter.
Key definitions you must know (historical)
Uniting of interests (pooling)
A business combination in which shareholders of the combining entities combine control over their total net assets/operations, to achieve a continuing mutual sharing of risks/benefits – no party identified as an acquirer.
Goodwill (original)
Any excess of the cost of acquisition over the acquirer's interest in the fair value of identifiable assets/liabilities acquired – amortised over its useful life.
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The Purchase Method (with worked example)
The direct ancestor of IFRS 3's acquisition method
Under the purchase method, one entity (the acquirer) was clearly identified, and the cost of acquisition was allocated to the identifiable assets/liabilities acquired at fair value, with any excess recognised as goodwill.
Example 1: Basic purchase method goodwill calculation
An acquirer pays $10,000,000 for 100% of a target. Fair value of identifiable net assets acquired: $8,500,000.
Goodwill = 10,000,000 − 8,500,000 = $1,500,000 – this calculation is essentially identical to IFRS 3's own goodwill formula (absent the NCI/previously-held-interest complexities IFRS 3 later added for partial acquisitions).
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Pooling of Interests (Uniting of Interests)
No acquirer, no fair value step-up, no goodwill
Where a combination genuinely met the "uniting of interests" criteria (broadly, a merger of equals with no identifiable acquirer, typically involving predominantly equity consideration and continuing shared ownership/management), the combining entities' assets and liabilities were combined at their existing book values – no fair value revaluation occurred, and no goodwill was recognised, since no "purchase" in substance had taken place.
Pooling was widely criticised as a loophole – entities could structure transactions specifically to qualify for pooling, avoiding both fair value step-ups and goodwill recognition entirely, even where the transaction's genuine economic substance more closely resembled an acquisition.
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Goodwill – Recognition and Amortisation (with worked example)
Mandatory amortisation, generally capped at 20 years
Goodwill arising under the purchase method was capitalised and amortised on a systematic basis over its useful life – generally presumed not to exceed 20 years, though a longer period was permitted if justified. This is a direct contrast with IFRS 3/IAS 36's current approach (no amortisation, mandatory annual impairment testing instead).
Example 2: Goodwill amortisation under IAS 22
Continuing Example 1: $1,500,000 of goodwill is assigned a useful life of 15 years.
Annual amortisation charge = 1,500,000 / 15 = $100,000 per year, recognised in profit or loss every year for 15 years – regardless of whether the acquired business was performing well or poorly, a mechanical charge IFRS 3's impairment-only approach entirely eliminated.
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Negative Goodwill (Historical Treatment)
Deferred and amortised, not recognised immediately
Where the fair value of net identifiable assets exceeded the cost of acquisition ("negative goodwill"), IAS 22 required this excess to be treated cautiously – first reduced by reassessing the identification/measurement of identifiable assets/liabilities, and any remaining excess recognised as income systematically over the period expected to benefit, rather than immediately – a significantly more conservative, deferred approach than IFRS 3's current requirement to recognise a bargain purchase gain immediately (after reassessment).
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Minority Interest (Original Terminology)
Measured at proportionate share only – no fair value option
Under IAS 22, "minority interest" (the historical predecessor term for NCI) was measured only at its proportionate share of the acquiree's identifiable net assets – there was no option to measure it at fair value, unlike IFRS 3's later genuine choice between the two methods.
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Why IAS 22 Was Replaced
A comprehensive overhaul as part of global convergence efforts
IAS 22's pooling of interests option, and its mandatory goodwill amortisation, were widely criticised – pooling for enabling economically similar acquisitions to be accounted for inconsistently, and amortisation for imposing a mechanical, often arbitrary annual charge unrelated to genuine goodwill impairment. As part of a broader convergence effort with US GAAP (which had already abolished pooling and moved to impairment-only goodwill testing under SFAS 141/142), the IASB replaced IAS 22 with IFRS 3 in 2004.
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Disclosure Requirements (Historical)
Required disclosures under IAS 22
The names and description of combining entities, and the method used (purchase or pooling) The amount of goodwill (or negative goodwill), its useful life, and the amortisation method Details of adjustments to previously reported figures, if pooling of interests was applied
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Critical Judgments & Estimates (Historical)
Where management judgement mattered most
SIGNIFICANT JUDGEMENTS
Whether a combination genuinely qualified for pooling of interests treatment Fair value of identifiable assets/liabilities acquired under the purchase method
SIGNIFICANT ESTIMATES
Goodwill's useful life, for amortisation purposes (generally capped at 20 years)
The pooling qualification criteria were, in practice, sufficiently flexible that entities could sometimes structure transactions specifically to achieve pooling treatment – a widely recognised weakness that directly contributed to its eventual abolition.
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IAS 22 vs Modern IFRS 3
Comparison – IAS 22 (1998 revision) vs current IFRS 3
FeatureIAS 22 (withdrawn)Current (IFRS 3)
Method choicePurchase method OR pooling of interestsOnly the acquisition method – pooling abolished entirely
Goodwill subsequent treatmentMandatory amortisation (typically ≤20 years)No amortisation – mandatory annual impairment testing instead
NCI (minority interest) measurementProportionate share ONLY, no choiceChoice between fair value and proportionate share, per combination
Negative goodwill / bargain purchaseDeferred and recognised as income systematically over timeRecognised immediately in profit or loss, after mandatory reassessment
The abolition of pooling and the shift to impairment-only goodwill testing represent the two most fundamental reforms – both directly improving comparability and faithful representation relative to IAS 22's more permissive, amortisation-based regime.
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Statement Mapping (Historical, Under IAS 22)
Comprehensive event-to-statement mapping table
Event / transactionStatement(s) affectedNotes
Purchase method – assets/liabilities at fair valueSOFPSimilar to today's acquisition method
Goodwill amortisation chargeSOPL SOFPMandatory, mechanical annual charge – no current equivalent
Pooling of interests – combination at book valuesSOFPNo goodwill, no fair value step-up – treatment abolished under IFRS 3
Negative goodwill deferred income recognitionSOPLRecognised systematically over time, not immediately
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Related Standards
Cross-reference map
StandardConnection
IFRS 3The direct successor, abolishing pooling and replacing amortisation with impairment testing
IAS 36Now governs goodwill's only subsequent measurement mechanism – annual impairment testing
IFRS 10Supplies the control concept determining the acquirer in a business combination
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Quick-Reference Glossary
Pooling of interests (uniting of interests)
A now-abolished method combining entities at existing book values, with no acquirer identified and no goodwill recognised.
Negative goodwill
The historical term for what IFRS 3 now calls a 'bargain purchase' gain – treated very differently (deferred vs immediate recognition) under the two standards.
Purchase method
The method under IAS 22 where one entity (the acquirer) is identified, assets/liabilities are fair-valued, and goodwill is recognised as the residual excess of cost over net assets acquired.
Minority interest
The historical predecessor term for non-controlling interest (NCI), measured only at proportionate share of identifiable net assets under IAS 22, with no fair value option.
Goodwill (original)
Any excess of the cost of acquisition over the acquirer's interest in the fair value of identifiable assets/liabilities acquired – amortised over its useful life under IAS 22.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows