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February 2015

Feedback statement on the Discussion Paper on the accounting treatment for goodwill

Feb 04, 2015

On February 4, 2015, a research group of the Accounting Standards Board of Japan, the European Financial Reporting Advisory Group and the Italian standard setter Organismo Italiano di Contabilità released a feedback statement summarizing the comments received on a Discussion Paper (DP) published in July 2014. That DP “Should Goodwill still not be Amortized? - Accounting and Disclosure for Goodwill” was arguing that the reintroduction of amortization of goodwill would be appropriate.

In response to the paper, the research group received twenty nine comment letters.

The majority of respondents supported reintroducing the amortisation of goodwill. Nonetheless, these respondents provided mixed views on whether the IASB should indicate a maximum amortisation period. Some respondents also acknowledged the subjectivity and high level of judgement in determining the useful life of goodwill, but they believed the level of subjectivity and judgement to be not higher than that in the impairment test. In general, respondents who supported the amortisation of goodwill believed that the IASB should develop guidance to help preparers to determine the useful life of the acquired goodwill.

A minority of respondents, mostly users, were supportive of the current impairment-only approach. These respondents explained that the amortisation model was fairly meaningless and it would not be beneficial to users of financial statements.

The full feedback statement is available on the EFRAG website.

IASB proposes amendments to IAS 1 to clarify the classification of liabilities

Feb 10, 2015

On February 10, 2015, the International Accounting Standards Board has published an Exposure Draft of proposed amendments to IAS 1, Presentation of Financial Statements. The amendments aim at a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. Comments are requested by June 10, 2015.

Background

The issue was originally adressed as part of the annual improvements project 2010 -2012 cycle. Exposure Draft ED/2012/1 Annual Improvements to IFRSs (2010—2012 Cycle), published in May 2012, proposed amendments to IAS 1.73 to clarify that a liability is classified as non-current if an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility with the same lender, on the same or similar terms. During 2013, however, the IASB decided not to finalise the amendment, but instead pursue a narrow-scope project to refine the existing guidance in IAS 1 on when liabilities should be classified as current.

Suggested changes

The amendments proposed in ED/2015/1 Classification of Liabilities (Proposed amendments to IAS 1) aim at:

  • clarifying that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period by amending IAS 1.69(d) and IAS 1.73 so that both paragraphs refer to the "right" to defer settlement and both make explicit that only rights in place "at the end of the reporting period" should affect the classification of a liability;
  • making the link clear between the settlement of a liability and the outflow of resources from an entity by adding to IAS 1.69 that settlement refers to the "transfer to the counterparty of cash, equity instruments, other assets or services"; and
  • reorganizing the guidance in IAS 1 with respect to classification of liabilities as current or non-current by deleting IAS 1.74–76 and moving their content to the expanded and renumbered paragraphs IAS 1.72R and IAS 1.73R so that similar examples are grouped together.

Effective date and transition requirements

The ED does not contain a proposed effective date. However, the ED proposes that the amendments would be applied retrospectively and that early application should be permitted.

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