Goodwill and impairment

Date recorded:

Goodwill and impairment project — Agenda paper 18


As a result of the post-implementation review (“PIR”) of IFRS 3 Business Combinations the IASB decided to examine issues related to the subsequent accounting for goodwill; improving the impairment test in IAS 36; and the identification and measurement of intangible assets in a business combination.  The IASB discussed the first two topics in October and the third in November 2015.  In February 2016 the Board continued deliberations on those topics and instructed the staff to provide quantitative information about the amount and trends of reported goodwill, impairment and intangible assets over recent years. The staff would present this information at the April 2016 IASB meeting.

No technical decisions were made at those earlier meetings. 

During this meeting the Board considered (i) ways to improve the information provided about goodwill and impairment and (ii) whether there was a need to clarify the existing requirements for customers relationships acquired in a business combination.

Staff proposal for continuing the project:

The staff proposed to continue the project in two phases:

Phase one: To discuss the following topics jointly with the FASB: (i) whether to include any intangible assets in goodwill rather than recognising them separately and (ii) subsequent accounting for goodwill (in particular whether reintroducing amortisation of goodwill would improve financial reporting).

Phase two: To have IASB-only discussions to consider improvements to the impairment testing and disclosures.

The timetable proposed by the staff is as follows:

  • April 2016: Presentation of quantitative information
  • April/May 2016: Education session with the FASB by videoconference.
  • June 2016: Joint decision making meeting with the FASB.

Goodwill and impairment project– Customer relationships acquired in a business combination- Agenda paper 18A (topic included in Agenda paper 18A discussed in February 2016)


In February 2016 the staff presented analysis about clarifying guidance on customer relationships, a type of customer related intangible asset.

The purpose of this agenda paper was to describe an issue discussed by the IFRIC on customer relationships acquired in a business combination and provide staff analysis and recommendations for how the Board could address the issue. The staff did not ask the Board members to make any decisions on this agenda paper.  Instead, the IASB was asked whether they have enough information to discuss it with the FASB.

Staff recommendation

The IFRIC submission identified different views in practice about the classification of customer relationships as contractual or non-contractual. The classification had a significant impact in applying IFRS 3 because the legal environment in many countries made it impossible to sell a group of customers if they were not separable. The staff conclusion was that it was not necessary to clarify the meaning of “contractual” customer relationships, because other Standards already provided guidance of what was considered a contract. Instead, the staff recommended adding a definition of customer relationships in the Standard, as follows:

A customer relationship:

  1. represented the future economic benefits in the form of future business with a customer beyond the amount secured by any current contractual arrangement.
  2. existed  between an entity and its customer if the entity had information about the customer and had regular contact with the customer”.

Further, the staff recommended that if the definition was not met, the customer relationship should not be recognised separately from goodwill.


No decisions were made. The Board raised the following concerns and questions to the staff:

  1. The staff was asked to analyse what was going on in this area and to compare their analysis with FASB’s analysis
  2. There was general concern about distinguishing contracts on whether they were written or not because that was not useful information;
  3. There was general concern that customer data was not the same as customer relationships; customer data was consider as just having information about customers while customer relationships were beyond that;
  4. There were concerns about the definition proposed by the staff because it related to future transactions which were not under control of a company and accordingly, whether that could be considered an asset;

Goodwill and impairment project- Improving the disclosure requirements for goodwill and impairment- Agenda paper 18B


The Board discussed in February 2016 the staff analysis requirements in Agenda papers 18A and 18B.on improving disclosure.  Those agenda papers also include a discussion of concerns raised on the PIR of IFRS 3. The staff proposed that the Board (i) consider ways to make disclosures about goodwill and impairment more effective and (ii) decide which approach the staff should develop further.  The agenda paper included an analysis of the feedback received about impairment requirements.

Staff recommendation

The staff proposed for the Board to consider the following approaches for additional disclosure requirements:

  1. Disclosure of why management paid a premium and the key performance targets.
  2. Disclosure of why management paid a premium and the key performance targets and a basic comparison with actual performance.
  3. Breakdown of goodwill by acquisition.
  4. Disclosure of recoverability of goodwill.
  5. Information about the payback period. This option is not recommended by the staff.
  6. Consider ways to improve application of existing disclosures in IAS 36.

The staff also recommended that field testing should be performed to understand the impact on preparers, auditors and others of the options discussed.


No decisions were made. There was general support from the Board to the staff recommendations and the staff was encouraged to conduct field testing. The staff was specifically asked to focus on material acquisitions and inquire about the feasibility of the proposals noted in items (i) and (ii) above. There was no support for item (v) above because it was considered that the term was not defined and it would be difficult to implement. 

On the other hand, some Board members believed that the information required in items (i) and (ii) should be presented as part of management commentary instead of a company’s financial statements.

During the discussion while some concerns were presented by some Board members:

The concerns were related to:

  1. the information in items (i) and (ii) was usually presented to investors privately; however, there were concerns whether there could be market sensitivity information that could not be made publicly available;
  2. how this proposal would be consolidated into current disclosure requirements which were considered already complex;
  3. whether this proposal would work in companies with more than one acquisition per year;
  4. whether it would only encourage more boiler plate disclosures;
  5. whether it would be necessary to review the disclosure requirement objectives  in IFRS 3 and state the expectations more clearly;

Goodwill and impairment project- Improving the impairment test- Agenda paper 18C


In February 2016 the staff presented in agenda paper 18C an analysis of potential improvements to impairment testing to address concerns raised in the PIR of IFRS 3.

The purpose of this agenda paper was to ask the Board to consider a possible modification to the impairment test to address users’ concerns about late recognition of impairment losses and overstatement of goodwill (for example because of an overpayment).

Staff Analysis

The staff considered that an overpayment or underpayment might occur in a business combination and that acquired goodwill was comprised of some or all of the following components: (a) the fair value of the expected synergies and other benefits from combining the acquirer’s and acquiree’s net assets and businesses; (b) the fair value of the going concern element of the acquiree’s existing usiness; (c) assets that were not recognised separately because they were not identifiable; (d) differences that arisen because some assets and liabilities acquired in a business combination were not measure at fair value, for example income taxes and employee benefit; (e) overvaluation of the consideration paid by the acquirer; (f) overpayment by the acquirer.

Staff Recommendation

The staff believed that conceptually overpayments and underpayments should not be part of goodwill because they represent either a gain (in the case of underpayment) or a loss (in the case of overpayment) to the acquirer. However, the staff considered that the quantification of overpayments would not be feasible. Instead, the staff recommended three possible approaches:

  1. incorporate into the impairment test calculation any excess of the recoverable amount over the carrying amount of the existing CGUs (or groups of CGUs) to which goodwill is allocated;
  2. after the purchase price allocation has been completed, at the end of the measurement period, require any identified overpayment to be quantified and written off ;
  3. measuring acquired goodwill on a stand-alone basis against the assumptions that gave rise to it at acquisition;

The staff recommended following approach a). The agenda paper included a detailed analysis as to how the staff envisaged applying this approach.


No decisions were made. There was general support expressed by the Board for continuing to develop the thinking around the proposal (a) above and no significant interest was expressed for proposals (b) and (c) because it was considered that approach (a) would give an opportunity to address the concerns on existing requirements on impairment testing.  The staff was instructed to explore option (a) further and to provide the Board with a detailed analysis of how this approach would work.

During the discussion the following concerns were noted on approach (a):

  1. potential incremental costs and complexities would be added to the impairment testing;
  2. whether this approach would work in companies with more than one acquisition allocated to a CGU;
  3. whether this approach would encourage entities to not allocate goodwill acquired to existing CGUs in order to avoid the impairment testing on acquisition;
  4. whether there could be an impact depending on the accounting policies adopted by a company  in terms of identifying assets in an acquisition, (i.e. either more conservative or more liberal approach);
  5. it appeared difficult to understand how pre-existing internally generated goodwill would be measured for impairment testing; the paper seemed to assume that this could be calculated; in that regard the staff indicated that it would be clearer if that term were called “headroom”.


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