WHAT DETERMINES THE APPLICATION OF IFRS 3 IN ACCOUNTING FOR GOODWILL?

Accounting treatment of goodwill is often described as one of the most complex and controversial topics in the field of financial reporting, so it is of primary interest to examine the factors that affect application of IFRS 3 in Serbia given the low quality of financial reporting in developing countries to which Serbia belongs. Paper results show low quality of financial reporting on domestic business combinations which is an indicator to professional and regulatory bodies that there is significant room for improvement in this field. Research findings also show that: type of audit firm, the country of origin in which ultimate owner of an acquirer operates, legal form of an acquirer and finally transaction size play an important role in determining whether an acquirer will apply IFRS 3 when it comes to accounting for goodwill. Besides that paper reveals that materiality of goodwill is of significantly lower magnitude in domestic transactions than in transactions realized in developed European economies, but that the average percentage of consideration transferred allocated to goodwill is almost identical which implies that on average domestic and European M&As are equally motivated by the acquisition of goodwill as of the acquisition of identifiable net assets.