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EFRAG publishes its final comment letter on the IASB's discussion paper on goodwill and impairment

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

01 Feb 2021

The European Financial Reporting Advisory Group (EFRAG) has issued its final 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 final 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.  However EFRAG notes that the Discussion Paper does not aim at addressi​ng, through disclosure or enhancement of the impairment model, the perceived shortcomings in goodwill accounting.  Whilst some of the perceived shortcomings are addressed, EFRAG feels that there is still room for improvement in this area;
  • notes some practical issues to consider in relation to disclosures about the strategic rationale and management’s objectives for an acquisition as at the acquisition date and subsequent disclosures about whether an acquisition is meeting those objectives.  EFRAG asks the IASB to examine whether this information should be provided in the management commentary and indicates that these considerations would also apply to the suggested disclosures on expected synergies;
  • does not consider that the benefits would outweigh the costs for the proposal to disclose cash flows from operating activities as part of the requirements currently included in paragraph B64(q) of IFRS 3 Business Combinations and considers that presenting the amount of total equity exclusing goodwill on the statement of financial position could result in confusion;
  • 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;
  • appreciates the attempts to simplify the impairment test, but has reservations about introducing an indicator-only approach;
  • acknowledges the conceptual and practical arguments for both the impairment only model and reintroduction of amortisation and notes that more and more voices are raised in favour of the latter mainly for practical reasons. However, considering that an accounting policy should only be changed if it would provide reliable and more relevant information, EFRAG suggests the IASB further explore improvements to the existing impairment test and any cost and consequences of reintroducing amortisation; 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.

For more information, see the press release and the final comment letter on the EFRAG's website.

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