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EFRAG draft comment letter on the IASB's discussion paper on goodwill and impairment

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

30 May 2020

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB discussion paper DP/2020/1 'Business Combinations — Disclosures, Goodwill and Impairment'.

The IASB's project on goodwill and impairment aims at improving the information companies provide to investors, at a reasonable cost, about the businesses those companies buy and would help to hold management to account for its decisions to acquire those businesses.

In its draft comment letter on the discussion paper published in March 2020, EFRAG

  • supports the objective to explore whether companies can, at a reasonable cost, provide investors with more useful information about the acquisitions companies make;
  • notes some practical issues to consider in relation to disclosures about the strategic rationale, management’s objectives for an acquisition, and synergies; asks whether this information should be provided in the management commentary rather than the financial statements; and questions whether the benefits of some of the disclosures would outweigh the costs;
  • suggests that the guidance on goodwill allocation to cash generating units is possibly amended to improve how the impairment test for cash-generating units containing goodwill is applied in practice;
  • does not offer a view yet on whether amortisation of goodwill should not be reintroduced;
  • appreciates the attempts to simplify the impairment test, but has reservations about introducing an indicator-only approach;
  • supports the proposal to remove the restriction that prohibits companies from including cash flows arising from a future uncommitted restructuring or from enhancing the asset’s performance as well as to remove the requirement to use pre-tax inputs and pre-tax discount rates to calculate value in use;
  • does not assess that there would be any benefits of presenting the amount of total equity excluding goodwill in the statement of the financial position; and
  • would recommend that the issue on whether some intangible assets could be included in goodwill should be considered in a second phase of the project.

Comments on EFRAG's draft comment letter are requested by 30 November 2020. For more information, see the press release and the draft comment letter on the EFRAG's website.

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