Florentina, Moisescu. Ana-Maria, Golomoz.

“ Effects of business combinations on the competitive

environment.” Multidisciplinary Journal for Education, Social and Technological Sciences Vol 5/No
2(2018): pp 51-72

1. Summary of Article
The article under review in this paper is titled “Effects of business combinations on the
competitive environment” and was written by Moisescu Florentina and Golomoz Ana-Maria
from University "Dunarea de Jos" of Galati, a Romanian institution.

Purpose of the article

The major purpose of the article is to explore what business combinations entail on competition
environment. Most of the paper’s content is focused on the workings of different standards of
accounting and normalization standards. The details of how a business combination that falls
under the IFRS 3 has been overs\zealously explained.

Moreover the weavings of international accounting standards and how they apply in business
combinations have been presented in the four sections before the discussion section. The use of
and where particularly different IAS rules apply in determining recognition, evaluation and
identification of assets and liabilities in a process of combination have been discussed. Based on
these the stages involved in an IFRS 3 based acquisition process have been well presented. An
illustration of how the fair price, good will and other aspects of balance sheet during an
acquisition process has been presented.

Major and specific objectives

The major objective the article in review aims at is analyzing and balancing the benefits and
disadvantages of business combination as a competition strategy. The specific objectives as
inferred from the key questions stated in the abstract section seems to be on whether there is a
need to use business combination as a method of solving problems of certain entities or should
the method be used for its advantages despite the disadvantages.

Data used
The paper purely relies on literature reviews and secondary sources from reports by international
and national bodies. It makes use of some quantitative data regarding business combinations
collected in certain years. The paper made use of charts and illustrative images to present the
data and for analysis. No explicit method of analysis is presented by the article nor any
systematic literature review rather it simply discusses reports on business combinations from
different national and international entities relevant to the topic.

Discussion and Findings

The Discussion section concentrates on case studies and what benefits companies stood to gain
from business combination activities. Some of the advantages obtained as reported by the article
are that of increasing market quotas although there is a limit to this as anti-competition laws
come into play.

Disadvantages are also reported by the article of which limitation of credits in the short term due
to the ensuing uncertainty resulting from the combination. This however, as stated by the article
is mitigated by the long term benefits that enables the post combination entity to gain more credit
once the uncertainty cloud blows over.

2. Critical analysis
Discussions presented in the paper
The article is organized into 6 sections in addition to the abstract. The first section is an
introduction which introduces business combination as a type of restructuring strategy which
managers use as a coping mechanism in dynamic market conditions. A number of definitions are
also presented in the introduction regarding business combination and what processes constitute
a business combination under the international financial reporting standards 3(IFRS 3). The
article defined business combination as a merger of separate entities into a single enterprise.
Two controversies regarding business combinations are briefly touched upon: that of elimination
of method of interests pooling and that of depreciation of goodwill and how compliance of
standard IAS 36 on impairment of assets. Moreover, while recognizing acquisition as the only
method of business combination as recognized by IFRS 3 “business combination”, the article
implied that significant changes of practical applications specifically in identification and
evaluation of assets, liabilities, contingent liabilities, goodwill, and how these are subsequently
treated as well as the required information that are required to be presented in financial
statements. Three transactions listed to meet the grouping of entities: acquisition of all assets and
liabilities of an entity, acquisition of all assets, liabilities and right to activities of an entity
meeting the definition of a business and establishment of new legal entity that will take over the
assets, liabilities and business of grouped entities. Moreover, those that are outside the scope of
the IFRS 3 are also stated. Moreover, three rules for the profitability of a business combination
as listed by (Gomes-Casseres, 2015).

The second section entitled “Managing business combinations by acquisition method” explores
the processes of business combinations that fall under the IFRS 3. The third section deals with
how recognition and assessment of goodwill in a combination of enterprises is undertaken.

The fourth section explains the nuances in determining the acquisition cost of an entity. Here the
article provides an illustrative explanation on how fair value assessment and balance sheet
restructuring is done for acquisition of an entity.

The last two sections are that of discussions and conclusion respectively. Here case studies and
reports of business combinations are scrutinized and analyzed with much effort made to evaluate
their impact on the competition environment of various levels of markets.

Novelty of the study

The article is presents an updated exploration of the concept and practicalities of business
combination. Its method of presentation is unique as it makes use of illustrative and figurative
ways to present an already established and well written concept. This makes the article to be
novel.

Relationship in literature
A deep understanding of the concept and practicalities of business combination is seen to prevail
throughout the article. Numerous literatures have been made use of extensively albeit for the ad-
hoc method of reviewing mechanisms and at time arbitrary or limited touch up of certain
concepts. New terms and concepts are suddenly and unexpectedly. In other words, the literature
presented often lacks a structure that makes it difficult to easily follow the paper.

Discussions and conclusions

The article manages to directly and explicitly delve upon the benefits and disadvantages business
combinations in real world application. It makes use of different business combinations that
actually were undertaken by enterprises to justify the benefits as well as the caveats that
businesses may need to beware of when deciding to pursue a business combination. However,
the paper seems to provide a not so clear explanation to a disadvantage it identified regarding
salary conditions. The presented example regarding this disadvantage does not seem to clearly
justify how the stated disadvantage really manifests during business combinations.

The figure presented and made use by the article to justify there being a favoring for acquisitions
was the mergers and acquisitions in Romania from 2011 to 2017. Here, the authors chose the last
two years to imply there being an increased merger/acquisition activity i.e. an upward trend.
However, this is quite a limited time span and only recognized the trend for the last 2 years of the
entire range the figure presented. As such more justifying cases should have been made use of if
any. Moreover, serious errors of presented data is observed in the discussion section.

Quality of communication
The paper has adequate quality of communication. However, there is room for improvement as
numerous errata in spelling or repeated phrases are present in different parts of the paper.
Moreover, there is a lack of flow at times making certain concepts difficult to follow. Moreover,
dubious usage of pronouns in sentences makes it difficult to really understand concepts the
authors meant to convey. The paper is targeted to audience with more advanced knowledge of
accounting and international standards.

3. General contribution of the paper to the course

The article presents to a great detail how business combinations are undertaken under IFRS 3.
Although to a much lesser detail, it also mentions IFRS 5, IAS 38 and a number of other standard
accounting and market monitoring standards. How these standards are applied and weaved
together to ensure a valuable accounting reporting and sensible market conduct by participating
companies is in itself a very important advanced concept of financial accounting. The primary
concern of the article is IFRS 3 applicable business combinations. In this regard the stages of
acquisition method, concepts regarding fair pricing, goodwill, assets and liability evaluation is
done. This is of significant value especially the illustrative section which explains how to make
acquisition process is made to conform to accounting reporting standards. This is a very
important part of the course advanced financial reporting. Despite the limitations of the article
stated in the previous section the article helps one into getting a grasp on the process of business
combination and enquiring on a number of new concepts and terms hinted upon in the different
sections of the paper under review.