Background

This project results from the post-implementation review of IFRS 3 Business Combinations.

The feedback on the post-implementation review had revealed that impairment of goodwill is not always recognised in a timely fashion and that disclosures required by IFRSs do not provide enough information to understand whether the acquired business is performing as was expected at the time of the acquisition. There were also comments that the impairment test required for goodwill under IAS 36 Impairment of Assets is costly and complex.

The IASB therefore decided to investigate possible improvements to IFRS 3 Business Combinations and IAS 36 and a discussion paper was published on 19 March 2020.

The exposure draft published today considers feedback received on the discussion paper and proposes amendments to IFRS 3 and IAS 36 that aim at providing users with information that would allow them to better assess the performance of an entity’s business combinations and how efficiently and effectively management has used the entity’s economic resources to acquire these businesses.

Suggested changes

The proposed amendments in exposure draft IASB/ED/2024/1 Business Combinations — Disclosures, Goodwill and Impairment (Proposed amendments to IFRS 3 and IAS 36) are:

Proposed amendments to IFRS 3

• For strategic business combinations, which are a subset of material business combinations and are identified using a set of thresholds in IFRS 3, an entity would be required to provide information about its acquisition-date key objectives and related targets for the business combination and whether these key objectives and related targets are being met. An entity would only have to disclose information that is reviewed by its key management personnel.
• Entities would be exempted from disclosing some of the information if that information is commercially sensitive or would expose the entity to litigation risk.
• The exposure draft includes several other proposed amendments to the disclosure requirements in IFRS 3, including new disclosure objectives and disclosure requirements around expected synergies the strategic rationale for the business combination.

Proposed amendments to IAS 36

• The IASB proposes amendments to the impairment test in IAS 36 to reduce shielding by clarifying how to allocate goodwill to cash-generating units.
• Other proposed amendments regard the disclose in which reportable segment a (group of) cash-generating unit is included and how an entity calculates an asset’s value in use. 

Other proposed amendments

• The exposure draft also proposes to amend the forthcoming IFRS 19 regarding disclosures about the strategic rationale for a business combination, the expected synergies, the contribution of the acquired business and the discount rate used in calculating the value in use.

Comments on the proposed changes are requested by 15 July 2024.

Effective date

The IASB will decide on the effective date for the proposed amendments after exposure. The IASB proposes to require an entity to apply the amendments retrospectively. Earlier application would be permitted.

Additional information

Please click for:

• IASB press release
• Access to the exposure draft on the IFRS Foundation website
• Snapshot offering an overview of the proposals
• Short video explaining the proposals
• Our UK Accounting Plus project page on Goodwill and impairment
• Our related Need to know publication.

The update reports on the EFRAG Governance and Due Process -Administrative Board meeting on 27 February 2024, EFRAG Financial Reporting Board (EFRAG FRB) and EFRAG Sustainability Reporting Board (EFRAG SRB) joint meeting on 28 February 2024, EFRAG Financial Reporting Technical Expert Group (EFRAG FR TEG) and EFRAG Sustainability Reporting Technical Expert Group (EFRAG SR TEG) joint meeting on 15 February 2024, EFRAG FRB meeting on 29 February 2024 and EFRAG FR TEG meetings on 14 February and 15 February 2024.

The update also lists EFRAG publications issued in February including:

• EFRAG’s  consultation on sustainability reporting XBRL taxonomies
• EFRAG's first set of technical explanations on the implementation of the European Sustainability Reporting Standards (ESRSs)

Please click to download the February 2024 EFRAG Update from the EFRAG website.

A summary of the agenda is set out below:

Agenda papers for the meeting are available on the IFRS Foun­da­tion website.

The report provides analyses over 2,463 policies from 132 countries, 76 international and regional organisations from 1897 to the present day. The report notes a steep rise in voluntary policies since the UN Sustainable Decelopment Goals (SDGs) were launched in 2015.

According to the report, there is a dominance of government entities as policy issuers and a prevalence of voluntary (over mandatory) policies. Most policies fall into the "low restrictiveness" category, which suggests limited power of enforcement.

The full report is available on the C&S website.

The following topic is on the agenda:

ISSB consultation on agenda priorities: The ISSB will discuss the strategic direction of its activities. The staff recommends the following level of focus placed on each activity: a high level of focus on ‘supporting the implementation of IFRS S1 and IFRS S2’; a slightly lower, but equal level of focus on each ‘enhancing the SASB standards’ and ‘beginning new research and standard-setting projects’ when compared to ‘supporting the implementation of IFRS S1 and IFRS S2’; no specific level of focus on activities related to connectivity, interoperability and stakeholder engagement as these are all fundamental to the work the ISSB will perform in other activities; and reserved capacity for flexibility in the ISSB’s work to allow for the consideration of emerging issues and to support the IASB on projects/activities, as necessary.

Our pre-meeting summaries are available on our March meeting notes page and will be supplemented with our popular meeting notes after the meeting.

Finalisation of agenda decision—IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Climate-related Commitment: In its November 2023 meeting, the IFRS IC discussed a submission asking its views on how IAS 37 applies to climate-related commitments to a fact pattern where an entity, which is a manufacturer of household products, publicly states a net-zero transition commitment. The manufacturer published a detailed plan for the modification of the manufacturing method to achieve 60% reduction in emissions in nine years and to buy carbon credits to offset its remaining emissions after those nine years. The IFRS IC concluded that whether there is a constructive obligation depends on different facts and circumstances. The present obligation and probable outflow criteria are satisfied only after nine years and thereafter as the entity emits greenhouse gases. 43 comment letters were received and most of the respondents agreed with the technical analysis in the tentative agenda decision and agreed not to recommend that the IASB consider adding a standard-setting project to the work plan. The IFRS IC decided to finalise the agenda decision and suggested changes to the drafting of the agenda decision. 

Finalisation of agenda decision—IFRS 3 Business Combinations—Payments Contingent on Continued Employment during Handover Periods: In its September 2023 meeting, the IFRS IC received a submission about how an entity accounts for payments (as part of the acquisition agreement) to the sellers of an acquired business. The payments and continued employment aim to ensure the appropriate transfer of knowledge from the sellers to the new management team. The sellers are remunerated for their services at a level comparable to other management executives, but some of the consideration for the shares is withheld until the handover is complete and is forfeited if the individual leaves employment before completion of the handover. The sellers are also entitled to additional payments that are contingent upon meeting a specified level of financial performance and the continued employment during a limited period. The IFRS IC concluded that the evidence it gathered did not indicate that there is significant diversity in the accounting treatment and entities apply the accounting described in the agenda decision published in January 2013. 11 comment letters were received and most of the respondents agreed with the technical analysis in the tentative agenda decision. The IFRS IC decided to finalise the agenda decision.

IFRS IC input to IASB projects—Post-implementation Review of IFRS 9 Financial Instruments—Impairment: IFRS IC members provided their input to the IASB’s post-implementation review (PIR) of the impairment requirements in IFRS 9—specifically, on application matters related to determining expected credit losses (ECL) for intragroup financial instruments, loan commitments, financial guarantee contracts and purchased or originated credit-impaired (POCI) financial assets.

More In­for­ma­tion

Please click to access the detailed notes taken by Deloitte observers.

The Board will discuss the following:

• Work plan update
• Post-implementation review of IFRS 9 — Impairment
• Power purchase agreements
• Second comprehensive review of the IFRS for SMEs Standard
• Climate-related and other uncertainties in the financial statements
• Maintenance and Consistent Application
• Post-implementation review of IFRS 15 — Revenue from contracts with customers
• Equity method
• Management commentary — Project direction
• Catch-up exposure draft of the 'Subsidiaries without Public Accountability Standard'
• Rate-reg­u­lated ac­tiv­i­ties

The full agenda for the meeting can be found here. We will post any updates to the agenda, our com­pre­hen­sive pre-meet­ing summaries, as well as observer notes from the meeting on this page as they become available.

In November 2022, PEG published a revised Statement of Principles on the disapplication of pre-emption rights following the recommendations set out in the UK Secondary Capital Raising Review.

The report examines the implementation of the revised Statement of Principles by FTSE 100 and FTSE 250 companies for meetings held between 4 November 2022 and 31 July 2023 and includes the following key findings:

• 55.7% of FTSE 350 companies with an AGM during the study period sought enhanced disapplication authority allowed under the new Statement of Principles.
• 65.7% requested authority for a specified capital investment, in addition to general corporate purposes.
• 98.3% had all disapplication resolutions passed by shareholders, with only a small number seeing significant dissent.

A press release with links to the PEG monitoring report is available on the FRC website.  An accompanying FRC podcast is also available on the FRC website.

In the meeting, the SEC voted to finalise the proposed rule published in March 2022. According to a fact sheet posted by the SEC, the final rules will require a registrant to disclose, among other things:

• material climate-related risks;
• activities to mitigate or adapt to such risks;
• information about the registrant's board of directors' oversight of climate-related risks and management’s role in managing material climate-related risks; and
• information on any climate-related targets or goals that are material to the registrant's business, results of operations, or financial condition.

In a major change to the proposed rule, the SEC has decided to remove the requirement to disclose Scope 3 greenhouse gas (GHG) emissions and only require disclosure of Scope 1 and/or Scope 2 GHG emissions on a phased-in basis by certain larger registrants when those emissions are material.

The final rules will become effective 60 days after publication in the Federal Register, and compliance will be phased in from 2025 to 2033.

For more information, please see the following:

• Press release, text of the final rule and fact sheet, as well as statements by SEC Chair Gary Gensler and Commissioners Caroline A. Crenshaw, Jaime Lizárraga, Hester M. Peirce and Mark T. Uyeda on the SEC website
• Deloitte's Need to know - SEC adopts rule that requires climate-related disclosures

The full agenda for the meeting can be found here. We will post any updates to the agenda, our comprehensive pre-meeting summaries, as well as observer notes from the meeting on this page as they become available.