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Goodwill and impairment [joint with FASB]

Date recorded:

Background and current stage of the IASB’s research project (IASB Agenda Paper 18A)

Background

In this session, the IASB staff gave an overview of the background and a brief history of the IASB’s research project as well as its objectives. To date, the IASB has tentatively decided:

  • Not to consider reintroducing amortisation of goodwill (see IASB Agenda Paper 18C which sets out the stakeholder feedback to the IASB, the IASB’s discussion so far on amortisation of goodwill and other possible approaches for subsequent accounting for goodwill)
  • Not to consider allowing any identifiable intangible asset acquired in a business combination to be included within goodwill (see IASB Agenda Paper 18D which discusses the summary of current requirements in IFRS Standards, stakeholder feedback during and after the PIR of IFRS 3 and the staff analysis if this feedback)
  • To consider introducing requirements for an entity to disclose:
    • Each year, information about the headroom in a cash-generating unit (or groups of units) to which goodwill is allocated for impairment testing
    • Each year, a breakdown of goodwill by past business combination, explaining why the carrying amount of goodwill is recoverable
    • In the year in which a business combination occurs, the reasons for paying a premium that exceeds the value of the net identifiable assets acquired in a business combination, together with key assumptions or targets supporting the purchase consideration; and subsequently each year, a comparison of actual performance with those assumptions or targets
    • (See Agenda Paper 18F for stakeholder feedback during and after the PIR of IFRS 3 and disclosure improvements that the IASB decided to consider)
  • To improve the application of IAS 36 by:
    • Considering making impairment testing of goodwill more effective by using the unrecognised headroom of a cash-generating unit (or groups of units) as an additional input in the impairment testing of goodwill. Unrecognised headroom is the excess of the recoverable amount of a unit (or groups of units) over its carrying amount.
    • Pursuing making some changes to the requirements for estimating value in use
  • Not to consider providing relief from the mandatory annual quantitative impairment testing of goodwill mainly because doing so could exacerbate concerns about timely recognition of goodwill impairment (see IASB Agenda Paper 18E for a summary of the current requirements in IFRS Standards, stakeholder feedback during and after the PIR of IFRS 3, the staff’s analysis on a potential relief from the mandatory annual quantitative impairment testing of goodwill and the consideration of allowing goodwill to be tested at the entity-level or at the level of a reportable segment).

The IASB also tentatively decided not to develop a document that would seek feedback solely about the headroom approach. The IASB is currently exploring the form and content of the consultation document that should be issued as the next step in the research project.

Staff recommendation

As this was an education session, the staff did not recommend any decisions.

Discussion

There was not much discussion on this topic. One IASB member expressed concerns about the current goodwill impairment model in IFRS facilitating aggressive M&A behaviour. The IASB staff explained that the headroom approach was developed to target acquired goodwill but further research is required.

History, background and current stage of the FASB’s research project (FASB Agenda Paper 18B)

Background

This session outlines the FASB’s journey on the topic of goodwill and intangible assets and the current stage of the research project titled ‘Accounting for Certain Identifiable Intangible Assets in a Business Combination and Subsequent Accounting for Goodwill for Public Business Entities and Not-for-Profits’.

The FASB staff is currently performing outreach to evaluate whether additional changes to the subsequent accounting for goodwill beyond any changes to the impairment test are appropriate. The FASB plans to begin discussion on its research project in the third quarter of 2018 after further discussing the issues with its advisory groups and stakeholders.

Staff recommendation

As this was an education session, the staff did not recommend any decisions.

Discussion

The discussion focused on the objective and scope of the project. FASB staff confirmed that alignment with the IFRS model was desirable, but it was too early to decide whether goodwill amortisation would be reintroduced. FASB members agreed that impairment would be more useful than amortisation but might not justify the cost associated with the impairment testing. Ideally, the amortisation method would be dependent on the economics behind goodwill but that is not practicable.

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