Goodwill and impairment

Date recorded:

Goodwill and impairment project- Cover Paper, includes feedback from the 2015 Agenda Consultation- Agenda paper 18


The objective of this session was for the Board to analyse the following information:

  1. Quantitative data on goodwill and impairment: Staff from the Accounting Standards Board of Japan (ASBJ) and the European Financial Reporting Advisory Group (EFRAG) presented their data research, which included quantitative information about the amount and trends of reported goodwill, impairment and intangible assets. Agenda papers 18B and 18C provide detailed information on this presentation. The information presented was based on a request issued by the Board to help it consider how to respond to concerns issued on the IFRS 3 PIR.

  2. Feedback in the 2015 Agenda Consultation: The staff presented the feedback received both on this project and also on other issues relating to the Post-implementation Review (PIR) of IFRS 3 Business Combinations.

  3. Progress report on the impairment phase of this project: The staff presented a paper that provides an update on its progress on the impairment phase of the goodwill and impairment project and possible next steps. The analysis was presented in agenda paper 18A. (see separate summary)

The Board was not asked to make technical decisions.

Staff proposal for continuing the project:

The staff proposes to continue the project in two phases:

  • Phase one — To discuss the following topics jointly with the FASB: (i) whether to include any intangible assets in goodwill rather than recognising them separately and (ii) subsequent accounting for goodwill (in particular whether reintroducing amortisation of goodwill would improve financial reporting).
  • Phase two — To have IASB-only discussions to consider improvements to the impairment testing and disclosures.

The timetable proposed by the staff is as follows:

  • May 2016 — Education session with staff of the ASBJ and EFRAG to discuss their data research. Staff provided feedback from the 2015 Agenda Consultation and presented a progress report on improvements to the impairment requirements.
  • June 2016 — Joint education session with the FASB. The Board will continue discussions on this project, including considering the next steps in the light of the data research presented at the May meeting.

Feedback from the 2015 Agenda Consultation

1) Goodwill and impairment project

The goodwill and impairment project included the following topics: (i) identification and measurement of intangible assets acquired in a business combination; (ii) subsequent accounting for goodwill (including the relative merits of an impairment-only approach and an amortisation and impairment approach); and (iii) improving the impairment requirements in IAS 36.

The staff indicated that the majority of respondents considered the project of high importance and urgent. The main comments raised about the project are:

  1. The Board should reallocate the project from research phase to either development stage or Standards level stage, and accelerate the project. This is because there is confusion about this project being in the research phase when there is sufficient evidence to move the project to an advanced stage.
  2. The main focus of the project and highest priority should be on improving impairment requirements. Respondents indicated that impairment requirements are poorly applied, overly complex and subjective.
  3. The Board should reintroduce amortisation of goodwill. This is due to cost and benefits considerations.
  4. The Board should consider the accounting for intangibles in a business combination, and also the accounting for other intangibles (outside business combination). The reason is that the costs of separating intangibles from goodwill in a business combination do not justify the benefits of the information, particularly for those types of intangibles that are not recognised if internally generated.

Investors’ concerns are mostly related to the late recognition of impairment. Also, they suggest that disclosures should be improved to provide more information about the assumptions made and the success of previous acquisitions.

Staff analysis

The staff considered that there was no new information provided that should modify the direction of the project.

2) Other issues related to the IFRS 3 PIR (excluding definition of a business which is part of a separate project)

The staff indicated that few respondents had comments on other issues related to the PIR of IFRS 3.  The main concerns raised by investors are: (i) the IFRS 3 PIR did not sufficiently address issues relating to goodwill amortisation, disclosure of pro-forma information and information needs pertaining to mergers and acquisitions; (ii) provision of prior year comparative pro-forma information would also be useful although the priority is not as high; and (iii) some investors called for clear disclosures of the total consideration paid for an acquisition.

Staff analysis

The staff presented in February 2016 (Agenda paper 18A at that meeting) their recommendations to address the concerns raised about presentation and disclosure. The staff considers that the feedback from the 2015 Agenda Consultation provides sufficient persuasive argument for adding further items from the IFRS 3 PIR to the Board’s agenda at the current time.


There were no comments raised by the Board on this paper.


Goodwill and impairment project- Progress report: Improving the impairment requirements Agenda paper 18A


The purpose of this agenda paper was to provide Board members with an update on the staff progress in the impairment phase of the goodwill and impairment project. The Board had been having discussions since October 2015 about a number of approaches for improving the impairment requirements. This paper did not present any new analysis; rather it summarised the information presented in those meetings.

The Board was asked to provide feedback to the staff on the research performed and recommendations for next steps. The Board was not asked to make technical decisions.

The agenda paper presented a summary on the following topics:

  1. Feedback from the PIR of IFRS 3
  2. Objective of improving the impairment requirements
  3. Summary of approaches being considered
  4. Status of information requested by Board members
  5. Staff recommendations for possible next steps

In addition, Appendix A presented a summary of the research performed by the staff; and Appendix B presents the feedback from the Global Preparers Forum (GPF) on the disclosures approaches suggested by the staff.

a) Feedback from the IFRS 3 PIR on the impairment requirements

The PIR identified concerns that the current impairment requirements are costly and complex to apply and there are some shortcomings in the information provided to investors. The main challenges in applying the current impairment requirements identified during the PIR were: (i) cost of performing the annual impairment test; (ii) limitations of the value in use calculations; and (iii) high degree of subjectivity in the assumptions used in the impairment test.

In addition, users of financial statements noted the following limitations on the impairment test: (i) impairment losses are recognised too late; (ii) impairment calculations are inherently very judgemental; (iii) disclosures are not sufficient to assess whether the main inputs/assumptions are reasonable; and (iv) there is limited information provided to understand the subsequent performance of a business acquisition,

b) Objective of improving the impairment requirements

In considering improvements for the impairment testing, the staff stated two objectives: (i) simplifying the impairment without losing relevant information to investors and (ii) improving the information provided to investors without increasing the cost to preparers.

c) Summary of approaches being considered

  1. Possible approaches to simplify and improve application of impairment test— The approaches summarised below were discussed in October 2015 and February 2016 meetings in Agenda papers 18B and 18C respectively. See the summaries of those agenda papers for detailed information.
    • Approach I1 One model approach: In this approach the staff suggested electing one of the following three alternatives: (a) Method 1: Fair value less costs of disposal (FVLCD) (b) Method 2: Value in Use (VIU); (c) Method 3: Method depends on how the entity expects to recover the asset.
    • Approach I2 Relief from annual test: This approach recommends applying an indicator-only approach to impairment testing. This approach includes a qualitative assessment about the fair value of the CUG to which goodwill was allocated and an assessment of subsequent performance of the business acquired.
    • Approach I3 Improving VIU: This approach recommends (i) removing the requirement to use a pre-tax discount rate; (ii) not requiring management to make adjustments to their forecasts to exclude estimated future cash inflows or outflows that are expected to arise from a future restructuring to which an entity is not yet committed or improving or enhancing the asset's performance; and/or; (iii) issuing educational material to address complex areas.
    • Approach I4 Guidance on allocating goodwill to CGUs: This approach recommends issuing guidance or educational material to ensure that goodwill is allocated at the appropriate level.
  2. Possible approach to address concerns impairment is too little too late — The staff presented their analysis of a pre-acquisition headroom (PH) approach in April 2016 in Agenda paper 18A. See summary presented in April 2016 for detailed information.The staff indicates that if goodwill is allocated to an existing CGU or group of CGUs (‘units’) of the acquirer and the unit’s recoverable amount exceeds its carrying amount, the excess (headroom) will provide an instant buffer against recognition of an impairment loss of the goodwill allocated to the unit. The PH Approach would eliminate any pre-acquisition buffering effect by incorporating into the impairment test calculation any such headroom, existing at the date of acquisition, of the existing units to which goodwill is allocated.
  3. Possible approaches to improve disclosures about goodwill and impairment — The detailed staff analysis of these disclosure approaches is in March 2016 IASB Agenda Paper 18B. See the summary presented in March 2016 for detailed information..
    The staff suggests the following approaches:
    • Approach D1 Key performance targets: This approach recommends disclosing key performance targets supporting the purchase price paid, and hence supporting the amount of goodwill recognised.
    • Approach D2 Comparison with actual performance: This approach recommends disclosing an annual comparison of actual performance against the key performance targets for a number of years following the acquisition.
    • Approach D3 Goodwill breakdown: This approach recommends disclosing a disaggregation of the amount of goodwill at the reporting date into the contributing past acquisitions.
    • Approach D4 Goodwill recoverability: This approach recommends disclosing an explanation to justify why the amount of goodwill is recoverable for each significant acquisition in the breakdown in Approach D3.

d) Status of information requested by Board members

The staff presented the following research at this meeting:

  • Quantitative information about the amount and trends of reported goodwill, impairment and intangible assets:

The staff is still conducting research on the following information. Although some information gathered by the staff  is presented in Appendix A of this agenda paper:

  • Information about the relative frequency of use of FVLCD compared with VIU in determining recoverable amount in the IAS 36 impairment test.
  • Information about the timing of goodwill impairments relative to the related business combination.
  • Type of quantitative information currently being communicated to investors in support of an acquisition.

e) Staff recommendations for possible next steps

The staff recommended the following:

  • Develop the PH Approach further by considering the following: (a) The pros and cons, including the likely behavioural incentives/effects, of permitting or requiring the following methods to be used when allocating impairment losses under the PH Approach; and (b) develop examples for different scenarios.
  • Request feedback from the FASB and the Accounting Standards Advisory Forum (ASAF) on the approaches being considered for improving the impairment requirements.
  • Perform field testing and additional outreach with preparers, users and auditors about the possible disclosure requirements in approaches D1 and D2.


The Board approved the staff recommendations.


There was general support for the staff recommendations. There were no significant concerns raised during the discussion. The following were the main comments raised during the discussion:

  1. The staff was asked whether companies actually complied with the requirements of IAS 36 which requires companies to determine the  recoverable amount as the higher of an asset’s (or CGU’s) fair value less costs of disposal (FVLCD) and its value in use (VIU).  It was conjectured that it was possible that companies made a qualitative assessment instead of making detailed calculations to determine which value is higher.  The staff was not asked to do any more work on this area;
  2. One Board member suggested that entities be required to disaggregate goodwill by segment; and
  3. One Board member questioned whether the research that the staff was conducting on timing about goodwill impairment recognition following an acquisition would provide useful information. 

The staff clarified during the discussion that they are working on the following areas to address the issues on impairment: (i) Pre-acquisition Headroom approach; (ii) simplification of impairment testing and (iii) disclosures.  The staff also clarified that the field testing will be conducted with preparers before obtaining feedback from users.


Goodwill and impairment project- Quantitative Study prepared by ASBJ/EFRAG Staff- Agenda papers 18B and 18C

Paper Paper18B presented a summary of descriptive statistics and trend in reported goodwill, intangible assets and goodwill impairments, as well as related market data, over an eight-year period, across four jurisdictions.  It was supported by appendices (Paper 18C) explaining how the data were collected. 

The data were summarised for the IASB by the staffs of the Japanese Standard-setter and EFRAG, and they presented these papers at the session.  


No decisions were made at this session


The staff from EFRAG and the ASBJ clarified that the information presented did not represent the official view of their organisations, because the information had not been analysed by their technical departments. They provided a short presentation of the information presented in Agenda papers 18C and D and responded questions from the Board.

The Board members praised the EFRAG and ASBJ staff for their work and indicated that the information was very useful.

The comments and questions from the Board were primarily focused on understanding and clarifying the information presented. There was no specific discussion about next steps.

The main comments made were the following:

  1. The presentation highlighted the difference between the markets in Japan, US and Europe.
  2. In relation to Japan, it was noted that (a) relatively low levels of goodwill are recognised, compared to the US and Europe.  In reply the ASBJ staff member said that few companies in Japan grow through acquisition whereas in in the US this was a key driver of growth; (b) some board members believe that the data indicates overpayments are lower in acquisitions compared to US and Europe acquisitions; (b) goodwill as percentage of total market capitalisation and net assets has remained stable over time; (c)  there was a consistent level of impairment and amortization even though the economic situation was not stable during the period; the question was whether the charges for amortisation and impairment were a faithful representation of the economic environment.  A board member asked whether the amortisation model (which was mandatory in Japanese GAAP) was the cause of this inconsistency; and (d) whether it would be possible to obtain more disaggregated information on impairment and amortisation;
  3. it was noted that there is a high concentration of goodwill in particular industries such as technology; it was also noted that the more goodwill was recognised, the more extra value the market added to unrecognised goodwill; that point was considered inconsistent and
  4. it was pointed out that it takes a significant number of years for goodwill to disappear from the balance sheet (particularly in the US market);
  5.  there was a significant number of companies with goodwill being over fifty per cent of net assets;
  6. there was a trend that when the economy went down there was also an increase in impairment charges.  This  could be an indication that impairments were not being recognised too late as was the current perception; and
  7. several Board members considered that an analysis by industry would be useful, particularly considering the analysis with and without financial institutions; another request was to analyse individual cases and the market reaction for impairment recognition;

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