Post-implementation review of IFRS 3

Date recorded:

Agenda Paper 13: Next steps

The Visiting Fellow reminded the Board that at the previous meeting they had identified topics that required follow-up work. The staff asked which kind of follow-up work should be performed and how they should interact with the FASB, who had already started working on some of the topics.

The staff recommended that a research project should be added to the IASB’s agenda concerning the improvement of the impairment test. Furthermore, projects with regard to the subsequent accounting for goodwill, the definition of a business and identification and measurement of intangible assets should be added to the agenda. For these three projects, the staff recommended working together with the FASB. These could be done through either separate Board discussions or joint sessions. The remaining topics should be considered in the next agenda consultation.

One Board member said that the projects on goodwill and intangible assets should also consider the valuation of subsequent performance by the acquiree. He also said that it was vital for convergence that the FASB and the IASB worked together on the ‘definition of a business’ project as different definitions would mean different scopes. For the impairment project, he suggested reviewing the measurement objective in IAS 36. The impairment test should be performed under the same concept as the concept that was prescribed by IFRS 13 for level 3 measurements. The entity-specific analysis should be disregarded.

Another Board member mentioned the difference between the issues that were found by the academic research and those that were raised by constituents. She said that the proposed projects were all large projects that would review some of the major concepts of IFRS 3. She expressed concerns about the amount of work that would be involved if these projects were moved directly from a PIR stage to the top of the IASB agenda. She believed that the staff recommendations merely resulted from the fact that the FASB had already begun the work on the projects. She said that it would be a late stage to join the FASB as they had already performed much of the work for private companies. She therefore disagreed with the staff recommendation.

One Board member disagreed with this view and said that the impairment test required an urgent review. He also agreed with the staff that the goodwill project should be initiated. The Vice-Chairman warned that whilst the impairment project would be a research project, agreeing to the other projects meant a commitment to change IFRS 3. The Visiting Fellow said that an agreement with the staff recommendation only meant that the staff would start the discussions with the FASB. Based on the outcome of these discussions, the IASB would still be able to decide whether they wanted to commit to changing IFRS 3. He conceded that the FASB’s next step would be to issue an Exposure Draft on these topics. If the IASB decided not to take the project onto their agenda, this would lead to the Standards no longer being converged. The Chairman suggested taking the projects onto the agenda but clarifying at the same time that this would not necessarily lead to amendments to IFRS 3. The Senior Director for Technical Activities said that taking the topics to the IFRS Interpretations Committee would also be an option.

One Board member said that the next agenda consultation was not far away. She therefore suggested waiting for the consultation. She was in favour of working together with the FASB but was reluctant to have a joint project.

Another Board member agreed with initiating projects on impairment testing and definition of a business but disagreed with starting a project on goodwill as the topic was too controversial even if the FASB were to go ahead with the project. He also said that in his view goodwill amortisation did not provide relevant information. With regard to the intangible project he said that it should be allowed to include intangible assets with an indefinite useful life in goodwill. This would provide a significant cost relief.

A fellow Board member said that the IASB should give a clear statement on whether or not IFRS 3 should remain converged with US GAAP. If the IASB decided to remain converged it would have to join the FASB project. The Chairman said that convergence would only work if the FASB also wanted to remain converged. He also said that the FASB had clarified before that the primary objective of their standard-setting was to serve the American capital market. Convergence was only a secondary objective to them.

One Board member suggested postponing the research project on impairment until the agenda consultation would have finished. The Chairman said that the impairment issue was almost certain to be raised by constituents in the consultation and he therefore suggested that staff began to work on the issue.

Another Board member said that as a first thing the feedback statement should be finalised and it should be described what the scope of the projects would be. The Chairman said that this would be too complicated. He proposed asking the FASB to put the project on hold to give the IASB more time to discuss. He also proposed that all four proposed projects were taken onto the IASB’s research agenda and that they should be made part of the agenda consultation. Nine Board members voted in favour of this approach.

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