Cover paper (Agenda Paper 18)

In March 2020, the IASB published DP/2020/1 Business Combinations—Disclosures, Goodwill and Impairment. The comment period for the DP ended on 31 December 2020.

In 2021, the IASB discussed the feedback received in response to the DP and decided to prioritise, amongst other things, performing further work to make decisions on the package of disclosure requirements about business combinations and to then redeliberate its preliminary view that it should retain the impairment-only model to account for goodwill.

In December 2022, the IASB agreed to move the project from the research programme to the standard-setting work plan.

The purpose of this meeting was to ask the IASB to make tentative decisions about some aspects of its preliminary views related to disclosure requirements about business combinations, namely, the nature of an exemption from certain disclosure requirements, and disclosure requirements regarding expected synergies.

Exemption from disclosure requirements (Agenda Paper 18A)

In September 2022, the IASB tentatively decided to propose exempting an entity from disclosing certain information about business combinations in specific circumstances. At that meeting, the IASB did not vote on specific details, but directed the staff design the exemption so that it applies when disclosing an item of information could be expected to prejudice seriously any of the entity’s objectives for a business combination, and to supplement the exemption with application guidance.

In this paper, the staff outlined the proposed principle-based exemption from disclosing an item of information if it could be expected to prejudice seriously any of the entity’s objectives for a business combination and application guidance which would require an entity to:

• Consider certain factors when determining if the proposed exemption applies
• Consider whether the required information could be disclosed at a more aggregated level
• Disclose the reason for applying the exemption
• Reassess in each subsequent reporting period whether the circumstances that gave rise to the exemption still exist and, if they do not, disclose the information previously exempted

The IASB was asked to vote if they agree with the staff recommendations.

The staff also asked the IASB to clarify whether a vote taken in the September 2022 meeting means:

• That an entity should be required to disclose a qualitative statement as to whether actual performance in subsequent periods met the target, to which the proposed exemption would apply, or
• That an entity is not required to disclose such a statement

IASB discussion

IASB members generally agreed with the recommended proposed exemption. Some members expressed concerns regarding the requirement to consider, when taking the exemption, what a competitor might do with the disclosed information subject to the exemption.

There were also mixed views regarding the requirement to disclose the reason as to why the exemption is taken, as this might be confidential information in itself.

When asked to vote, the IASB unanimously agreed with the principle of the exemption and voted 11:3 in favour of the application guidance.

When asked to clarify, 9 members of the IASB indicated that they agreed that an entity should be required to disclose a qualitative statement as to whether actual performance in subsequent periods met targets, but that the proposed exemption would apply to this disclosure requirement.

As there were some concerns about the appropriateness of such a qualitative statement from other members, it was suggested that the Basis for Conclusions could include details of previous IASB discussion.

Expected synergies (Agenda Paper 18B)

In September 2022, the IASB tentatively decided to add a requirement to IFRS 3 for an entity to disclose quantitative information about expected synergies in the year of a business combination, as well as an exemption in specific circumstances from disclosing such information.

In this paper, the staff recommended that:

• Subject to the proposed exemption, an entity should be required to disclose quantitative information about total expected synergies disaggregated by nature (e.g. total revenue, total cost synergies)
• The level of aggregation to which synergies are required to be disclosed is linked to the application guidance accompanying the disclosure exemption (which would require entities to consider if certain information could instead be disclosed at a more aggregated level)
• It is specified that a description of expected synergies is a description of the nature of the synergies.

The staff also recommended that the IASB’s preliminary view to require an entity to disclose when synergies are expected to be realised is modified to a requirement to disclose when the synergistic benefits are expected to start, and how long they are expected to last.

The IASB was asked to vote on each of these recommendations.

IASB discussion

The IASB generally agreed with the staff recommendations. Some IASB members requested clarification whether the list provided in the agenda paper, which identifies revenue, cost, and other synergies, is intended to be a list of illustrative examples, or a list of required headings.

When asked to vote, the IASB voted unanimously in favour of all recommendations.