Goodwill and impairment

Date recorded:

Understanding how the ideas explored interconnect (Agenda Paper 18A)


In July 2018, the Board tentatively decided that the staff should explore whether:

  • Disclosures with regard to business combinations could be improved to assess more effectively whether a business combination was a good investment decision and whether the business is performing as expected
  • The accounting for goodwill could be simplified by reintroducing amortisation and/or no longer require annual quantitative impairment testing of goodwill
  • The calculation of value in use could be improved by including cash flows that result from a restructuring and by no longer requiring pre-tax inputs in the calculation

In the agenda paper, the staff assesses which objectives (better information, reduction of costs, improving effectiveness) are helped by the ideas, what other benefits are and which objectives are hindered by the idea.

The Board is not asked to make a decision with regard to this paper.


One Board member said that the focus should still be on the ‘too little, too late’ (impairment) issue as this seems not to be one of the main objectives in the agenda papers. Another Board member emphasised that a reintroduction of amortisation would not remove the impairment requirements. As with any other intangible asset it would be impairment in addition to amortisation.

Better disclosures for business combinations (Agenda Paper 18B)


In this paper, the staff explores the first bullet from Agenda Paper 18A (see above).

The Board tentatively decided that the staff should explore whether the Board can improve disclosures with regard to business combinations. The post-implementation review (PIR) for IFRS 3 Business Combinations revealed mixed feedback in that regard. Users appear to be particularly interested in understanding the key drivers that determined the amount of consideration and whether the acquisition has subsequently been successful.

Based on feedback from the PIR and from stakeholder outreach conducted (summarised in Agenda Paper 18C), the staff suggest the Board propose two changes to the disclosure objectives of IFRS 3:

Firstly, make the disclosure objectives more specific, to help preparers understand why the information is needed, and thereby help to improve the information produced and secondly, add a new disclosure objective for entities to provide information that users need about the subsequent performance of the acquired business, or combined business.

In the paper, the staff analyse how to improve the disclosure objectives in detail and which additional disclosures would be helpful to better understand the key objectives of a business combination.

Staff recommendation

The staff recommend that the Board add the following disclosure objectives to the existing disclosure objectives of IFRS 3 to provide users with information:

  • To evaluate the strategic rationale for the business combination
  • To understand the amount of, and evaluate the rationale for, the total consideration transferred to obtain control of the acquiree
  • To evaluate the extent to which the key objectives of the business combinations have been achieved.

The staff also recommend that IFRS 3:B64(d) be amended to require an entity to disclose:

  • The strategic rationale for undertaking the business combination, such as how the acquisition links to the acquirer’s business strategy
  • The key objectives of the business combination, being the targets management expect to achieve as a result of undertaking the business combination

An acquirer should also be required to disclose, in the reporting period when a business combination occurs:

  • what measures the Chief Operating Decision Maker (CODM) plans to use, in future internal reporting, to assess the extent to which the key objectives of the business combination have been achieved
  • the amounts of those measures being used to assess the extent to which the key objectives of the business combination have been achieved (this information would also be required for at least the next two annual reporting periods)

An acquirer should be also required to disclose for each business combination that occurs in the current reporting period:

  • Where synergies from combining operations of the acquiree and acquirer are expected, a description of synergies and of the expected timing of achieving those synergies, the amount (or range of amounts) of the synergies and the expected costs (or range of expected costs) to achieve the synergies (adding to IFRS 3:B64(e))
  • The amounts recognised as of the acquisition date for each major class of identifiable assets acquired and liabilities assumed, stating that liabilities arising from financing activities and pensions obligations are considered to be major classes of liabilities assumed for the purposes of this disclosure requirement (amendment to IFRS 3:B64(i))
  • The amounts of revenue, operating profit or loss before acquisition-related transaction and integration costs, and cash flow from operating activities of the acquiree, since the acquisition date included in the consolidated statement of comprehensive income and consolidated cash flow statement for the reporting period (amendment to IFRS 3:B64(q))


The Board welcomed the general direction of the project, in particular the improvement of objectives. Board members acknowledged that preparers are reluctant to provide more disclosures, but the aim of the project should be to revisit existing disclosure requirements as well. As a consequence, some of the existing requirements might disappear. The requirements should encourage good behaviour, but cannot be too specific. Some of the disclosures suggested by the staff would result in boilerplate information, according to one Board member.

The Board members touched on some of the requirements suggested in the agenda paper and gave comments. In particular, the requirement to only provide information for acquisitions that are reviewed by the CODM caused some concern. The PIR on IFRS 8 Operating Segments proved that it is very difficult to base consistent disclosure on the management approach as there are opportunities for entities to circumvent undesirable disclosures. Some Board members thought that the concept in IFRS 8 is not robust enough to apply it to IAS 36 Impairment of Assets and IFRS 3. One Board member highlighted that the PIR on IFRS 8 revealed that there were different understandings around the world of who the CODM is. In the US, for example, it is traditionally one person, while in the rest of the world it could be several people. The word ‘review’ in the sense of what the CODM regularly reviews is also interpreted differently. A Board member said that there will always be some flexibility in the disclosure requirements. Another Board member suggested to consider to present a minimum of information, regardless of whether the CODM reviews that information or not. The Vice-Chair expressed concern that this discussion would re-open the discussion on IFRS 8, which is undesirable.

As regards the disclosure of how the key objectives of the acquisition have been achieved, some Board members thought that this would be onerous for acquisition-heavy entities, especially if it has to be done for a number of years. The staff responded that this was mitigated by the management approach. There was also concern about measuring the key objectives of the acquisition only on an entity-level, as some entities are integrated very quickly and then information on a bigger part of the business (up to an operating segment) would have to be disclosed. Once CGUs change and targets are broken up, the entity would be unable to track the individual acquisition information. One Board member said that the term ‘synergies’ would have to be defined as different entities have a different understanding of what synergies encompass. Another Board member suggested to examine why the predecessor Standard to IFRS 3 required an analysis of historical cost of the assets of the entity vs. the fair value of those assets. There might have been useful information in that requirement.

Some Board members found the disclosure of how an acquisition performs against expectations useful. Currently, underperformance of an acquisition should be captured by the impairment requirements, however, not every underperformance leads to an impairment. Improving the impairment test could help, but the Board agreed that more than that would have to be done. One Board member suggested that until the impairment test and the disclosures are improved, the Board should highlight to investors that goodwill is a very risky asset.

The Board also discussed whether there should be a review of the existing disclosure requirements in IFRS 3. The Board had previously decided that those should not be taken under review until after the Discussion Paper (DP) was issued, however, it will be difficult to perform a full analysis in the DP without touching on IFRS 3. This would also signal to practice that the Board is not only considering an increase of disclosures, but also a removal of unnecessary existing requirements. In addition it would show that the Board takes PIRs seriously. One Board member suggested to retain the requirement to disclose pro-forma information, given that users have confirmed that the information is useful. However, the Board member conceded that the Board should review this requirement to ensure that the most useful information is provided. The current requirements are not sufficiently clear to result in comparable information being provided.

The Chairman suggested to include in the DP a discussion around ‘tangible equity’, i.e. disclosure of the amount of equity before intangible assets. This would result in more reliable equity information as intangible assets are difficult to measure. Many Board members welcomed the idea and suggested that the staff explore this path. Some Board members also suggested to take the idea further and consider offsetting goodwill against equity, to which one Board member responded that the Board has always seen goodwill as an asset.

On amortisation, several Board members suggested to at least include the idea in the DP to get feedback from users.

As a next step, the staff will bring a paper to the May 2019 Board meeting that would ask the Board for its preliminary views on the issues to be discussed in the DP.

No decisions were made.

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