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.

In February 2019, the FRC issued a Discussion Paper on the Business Reporting of Intangibles which considered the case for radical change to the accounting for intangible assets and the likelihood of such change being made in the near future.  The feedback statement provides a summary of the views expressed in the responses to the Discussion Paper. 

The majority of respondents acknowledged the limitations of the current reporting framework in capturing and presenting clearly the nature and value of intangibles and were supportive of efforts to address this issue, including strong support from investor respondents.

The main reservation expressed about the proposals in the Discussion Paper was that, given the inherent measurement uncertainty relating to intangible assets, and the difficulty in identifying future-oriented expenditure, efforts to provide greater transparency would lead to highly subjective disclosures and involve a high degree of management judgement. There were also concerns around the commercial sensitivity of the information and compliance costs.

The feedback statement is available on the FRC website.

The paper notes that the current coronavirus epidemic has created a significant layer of uncertainty which has permeated all markets. While this is not necessarily just confined to the basis of market value, however, it still raises its own specific challenges:

• How does the valuer quantify market value with a lack of market comparable information in the new COVID-19 world?
• Where market comparable information is available, have the parties ‘acted knowledgeably, prudently and without compulsion’?
• Does a pandemic environment enable parties to undertake ‘proper marketing’ or do sales that are witnessed in the early stages of such an event represent an environment comprised of overly willing sellers and opportunistic buyers that is more aligned with a liquidation market?

Please click to access the perspectives paper on the IVSC website.

For more information, see the press release and presentation on the IASB’s website.

The podcast discusses:

• Feedback on consultation paper Exposure Draft General Presentation and Disclosures
• Disclosure Initiative—Subsidiaries that are SMEs project
• Board’s current work plan
• Exposure Draft Regulatory Assets and Regulatory Liabilities
• Upcoming consultation on Disclosure Initiative—Targeted Standards-level Review of Disclosures.

The podcast (16 minutes) can be accessed through the press release on the IASB website.

The detailed notes taken by Deloitte observers at the meeting are available here.

Below is an analysis of all changes made to the work plan since our last analysis on 18 December 2020.

Stan­dard-set­ting projects

• Disclosure initiative — Subsidiaries that are SMEs — The IASB decided to publish an exposure draft (and not a discussion paper), which is expected in the second half of 2021.
• Disclosure initiative — Targeted standards-level review of disclosures — The exposure draft on this project is now expected in March 2021 (previously Q1 2021).
• Financial instruments with characteristics of equity — This project is now correctly listed as a standard-setting project.
• Primary financial state­ments — The Board decided to move forward with the project and a new Standard is stated as the next milestone; however, no timeline is given.
• Rate-regulated activities — The Board published an exposure draft on 28 January 2021 and discussion of the feedback received is expected to begin in the second half of the 2021.

Main­te­nance projects

• Lack of exchangeability (Amendments to IAS 21) — An exposure draft is now expected in March 2021 (previously Q1 2021).
• Lease liability in a sale and leaseback — Discussion of the feedback received on the exposure draft is expected to begin in the second quarter of 2021 (previously H1 2021).

Research projects

• Goodwill and impairment — Discussion of the feedback received on the discussion paper is now expected to begin in March 2021 (previously Q1 2021).
• Second comprehensive review of the IFRS for SMEs Standard — A decision on the project direction is now expected in March 2021 (previously Q1 2021).

Other projects

• IFRS Taxonomy Update — Amendments to IAS 1, IAS 8 and IFRS Practice Statement 2 — The next milestone is now correctly identified as "Proposed IFRS Taxonomy Update" again; the proposed update is now expected in second quarter of 2021 (previously February 2021).
• IFRS Taxonomy Update — Amendments to IFRS 17, IFRS 4 and IAS 16 — An IFRS Taxonomy Update is now expected in March 2021 (previously Q1 2021).
• Sustainability Reporting — The date for the discussion of the feedback received on the Trustees' consultation paper has been removed, however, the IASB website reveals that the Trustees will begin discussing the feedback on 1 February 2021.
• Third Agenda Consultation — This is the new name of the 2020 Agenda Consultation project; a request for information is now expected in March 2021 (previously Q1 2021).

The above is a faithful com­par­i­son of the IASB work plan at 18 December 2020 and 29 January 2021. For access to the current IASB work plan at any time, please click here.

Agenda decision to finalise

IFRS 10 Consolidated Financial Statements and IFRS 16 Leases—Sale and Leaseback of an Asset in a Single-asset Entity: In September 2020, the Committee discussed the applicability of the sale and leaseback requirements in IFRS 16 to a transaction in which an entity sells its equity interest in a subsidiary that holds only a real estate asset and then leases that real estate asset back. The staff concluded that IFRS 10:25 and B97-B99 apply to the accounting for the loss of control of the subsidiary and IFRS 16:100(a) applies for measuring of the right of use (ROU) asset and the gain on the leaseback arrangement. However, most of respondents from the outreach performed suggested adding a standard-setting project because the requirements in IFRS Standards do not provide an adequate basis to support the analysis and conclusion. The staff, therefore, asked the Committee whether it wants to finalise the tentative agenda decision or whether an amendment to IFRS 10 is required.

New issues

IAS 2 Inventories—Cost necessary to sell inventories: Which costs should an entity include as part of the estimated costs necessary to make the sale when determining the net realisable value of inventories?

The staff recommend publishing a tentative agenda decision stating that an entity includes all costs needed to make the sale, instead of only including additional costs required by the particular conditions of the inventories to make the sale.

IAS 10 Events after the Reporting Period—Preparation of Financial Statements when an Entity is No Longer a Going Concern: Can an entity prepare financial statements for prior periods on a going concern basis if it was a going concern in those periods and had not previously prepared financial statements for those periods? And if it had previously prepared financial statements for the preceding period on a going concern basis, is it required to restate comparative information in respect of the preceding period to reflect the basis of accounting used in preparing the current period's financial statements? IFRS Standards are silent on both matters.

The staff recommend not to add the matter to the Committee’s standard-setting agenda as the matter is not widespread and there is no evidence of diversity in practice.

Work in progress: The staff are analysing requests related to the accounting of warrants that are initially classified as liabilities and non-refundable value-added tax on lease payments.

The full agenda for the meeting and our com­pre­hen­sive pre-meet­ing summaries can be found here.

Their discussions will consider approval of a shortened comment period for a potential exposure draft of an amendment to IFRS 16 Leases, extending operational relief to lessees in accounting for COVID-19-related rent concessions, and initial analysis of responses to the Trustees’ consultation paper on sustainability reporting.

An agenda paper on the comment period is available on the IASB website.

As reported earlier, the Board of the European Financial Reporting Advisory Group (EFRAG) published positive a draft endorsement advice on IFRS 17, however, it was noted that the EFRAG Board achieved consensus on all issues with the exception of annual cohorts, with nine Board members voting in favour of the cohorts meeting the endorsement criteria and seven members disagreeing.

ESMA's comment letter notes that IFRS 17 has the benefit of providing transparency on insurance accounting aspects that have for a long time remained unregulated under IFRS due to the continued application of IFRS 4, which was initially intended as a temporary solution and which has de facto prevented the application of an accounting model that could provide clear principles on how to recognise, measure and present amounts relating to insurance contracts on the basis of commonly understood accounting principles.

On the annual cohort question, ESMA highlights that a key role in promoting greater transparency and consistency in accounting for insurance contracts in accordance with IFRS 17 is played by the principles for the aggregation of contracts that form an integral part of the new measurement model and that include the annual cohort requirement. ESMA notes that "IFRS 17 is built around a set of checks and balances which have been carefully developed" and ESMA regrets that EFRAG has decided to assess selected requirements in isolation from others. ESMA is of the view that the alternatives proposed cannot be considered to be more effective and efficient than the current annual cohort requirement.

ESMA therefore supports the endorsement of IFRS 17 in its current form. Should further evidence emerge that the effectiveness and efficiency of the requirements can be improved, ESMA believes the IASB should consider these as part of the post-implementation review of IFRS 17.

Please click for the following additional information on the ESMA website:

• Press release
• Comment letter on the draft endorsement advice

Recordings of the seven outreach events are now available on the EFRAG website.