The Discussion Paper is intended to contribute to the global discussion on how goodwill should be accounted for and disclosed. Under IFRS, goodwill arising from a business combination is not amortised but subject to an annual impairment test. In connection with the post-implementation review of IFRS 3 Business Combinations, the debate on the strengths and weaknesses of an impairment-only model gained renewed momentum.
In the Discussion Paper, the Research Group explores possible approaches to remedy the shortcomings that constituents identified:
- limited usefulness of the information resulting from the impairment-only approach,
- cost and subjectivity of the impairment testing in accordance with IAS 36, and
- lack of timeliness in the recognition of impairment losses.
In its paper, the Research Group considers one or a combination of the following: (a) changing the accounting requirements for goodwill, (b) improving the requirements for impairment testing and (c) improving the disclosure requirements in IAS 36 Impairment of Assets. As a result of its analysis, the Research Group concluded that reintroduction of amortisation of goodwill would be appropriate because it reasonably reflects the consumption of the economic resource acquired in the business combination over time, and can be applied in a way that achieves an adequate level of verifiability and reliability. In addition, the Research Group concluded that further improvement should also be considered in the area of disclosure requirements.
The Discussion Paper also includes a chapter providing the Research Group's observations if the IASB decides to reintroduce the amortisation and impairment approach.
The ASBJ, EFRAG and OIC invite comments on the Discussion Paper by 20 September 2014.
Press releases offering access to the Discussion Paper are available on the ASBJ and EFRAG websites.