Goodwill and impairment

Date recorded:

Cover Paper (Agenda Paper 18)


In July 2018, the Board discussed how to focus its work on the Goodwill and Impairment research project and decided to identify improvements to the disclosure requirements; pursue changes to the value in use (VIU) calculations; not to characterise impairment testing as assessing whether the carrying amount of acquired goodwill is recoverable; and not to remove differences between accounting requirements for internally-generated intangible assets and those for intangible assets acquired in a business combination. 

They made the following tentative decisions:

  • a) To pursue the objective of exploring whether disclosures could be improved to enable investors to assess more effectively whether a business combination was a good investment decision and whether the acquired business is performing after the acquisition as was expected at the time of the acquisition
  • b) To pursue the objective of simplifying the accounting for goodwill by exploring whether to:
    • i. reintroduce amortisation and/or
    • ii. provide relief from the mandatory annual quantitative impairment testing for goodwill
  • c) To pursue the objective of improving the calculation of value in use by removing from IAS 36 Impairment of Assets:
    • i. the restriction that excludes from the calculation, those cash flows that are expected to result from a future restructuring of from a future enhancement
    • ii. the requirement to use pre-tax inputs in the calculation

The purpose of this session was to ask the Board to confirm the further work to be performed on the research project prior to drafting the Discussion Paper (DP) and to discuss the outline of the DP.

Staff analysis

The staff’s papers were split into three papers:

  1. Paper 18A—discusses the additional work to be performed in relation to objectives b) and c) above (simplification of the accounting for goodwill and the impairment test)
  2. Paper 18B—discusses the additional work to be performed in relation to objective a) above (improvements to disclosure requirements for business combinations)
  3. Paper 18C—draft outline of the DP

Additional work to be performed (Agenda Paper 18A)

The staff’s paper proposed in addition to the above objectives, the Board should reconsider their decision not to pursue the following ideas:

  • a) Improving the impairment test:
    • i. By revisiting the methodology in the calculation of recoverable amount, mandating only one method (VIU or fair value less costs of disposal (FVLCD)) or requiring an entity to select the method that reflects the way the entity expects to recover the asset
    • ii. Allowing goodwill to be tested at the entity-level or at the level of a reportable segment
    • iii. Adding guidance on the difference between VIU and FVLCD
  • b) Recognising identifiable intangible assets in a business combination by providing a further disaggregation of amortisation on the face of the statement of comprehensive income/income statement to allow investors to add back the amortisation of certain identifiable intangible assets

The staff were therefore seeking the Board’s decision to pursue the additional work detailed in Agenda Paper 18A prior to drafting a DP, namely:

  • a) To develop guidance on the differences between VIU and FVLCD
  • b) To further simplify the impairment test by conducting its own research, to consider the results of the research conducted by the Board’s Accounting Standards Advisory Forum (ASAF), to consider whether to adopt a single method for determining recoverable amount and to consider whether the allow goodwill to be tested at the entity-level or at the level of a reportable segment
  • c) Seek feedback from consultative groups on amortisation
  • d) Seek feedback from investors on what the carrying amount of goodwill is used for and/or
  • e) Disclosure of reported equity and profit or loss adjusted for acquired intangible assets that would not have been recognised if internally generated and goodwill


The discussion focused mainly on the proposed timeline of the DP, which foresees a publication in H1/2020. Many Board members expressed concerns about the long process as the issue is urgent. Board members did not understand why it would take the staff so long to write the DP. In the Board’s view, many of the potential issues for a DP have already been discussed and sufficient outreach had been performed, so drafting could begin immediately.

The staff pointed out that the timeline was based on the timing of the Global Preparers Forum (GPF) and the Capital Markets Advisory Committee (CMAC) meetings in March 2019. Feedback would be sought at that meeting and then discussed at the Board meeting in May 2019. Only after that, the drafting could begin. The Chairman suggested to start drafting without further outreach and perform outreach only as and when issues arise. By doing this, the delay would be kept to a minimum.

One Board member mentioned that the FASB is currently undertaking a review of the subsequent accounting of goodwill and with the IASB staff’s proposed timeline the FASB will probably publish their document before the IASB’s DP. The Board member was concerned that the FASB’s document could significantly constrain the Board when drafting their DP. This concern was not shared by the Chairman.

Some Board members emphasised that while the DP should be a strong basis for consultation, it does not have to be perfect. Many constituents have a good knowledge of the issue and it will not take a comprehensive DP to illustrate the concepts. The Vice-Chair warned that going into too much detail in the DP might create a barrier for constituents to engage with the DP. The DP on Financial Instruments with Characteristics of Equity (FICE) is an example for that. However, the Executive Technical Director warned that a lack of detail in the DP might lead to issues later on when drafting an Exposure Draft.

As regards content of the DP, the Board sees the reintroduction of amortisation as one of the main discussion points for the DP. The post-implementation review of IFRS 3 has revealed that the impairment of goodwill is not effective and the work performed to date has not remedied the problem. As a result, balance sheets might be inflated with goodwill and one alternative to reduce that inflation is to reintroduce amortisation. One Board member highlighted that under the current requirements, goodwill could theoretically remain on a balance sheet forever, which clearly not reflects the economic reality. However, Board members conceded that the amortisation period would be difficult to determine. Another Board member said that views were polarised and that there was no evidence to suggest anything has changed to cause the Board to switch to amortisation.

There was some discussion about the proposed guidance on differences between VIU and FVLCD. Some Board members thought that this guidance was not needed as there was already enough guidance on the differences and the fact that the proposals would bring both concepts closer together does not change that fact.


The Chairman decided not to call a vote on this paper as the messages relayed in the discussion are clear.

Identifying better disclosures for business combinations, goodwill and impairment (Agenda Paper 18B)

Following feedback from investors, the Board directed staff to consider how information about the subsequent performance of the acquired business could be provided. The staff have therefore sought feedback from ASAF on possible improvements to the current disclosure requirements the Board had tentatively decided and the following additional improvements the staff were considering for business combinations, goodwill and impairment:

  • i. The amount of revenue and operating profit of the acquired business during the financial year in which the business combination occurred and the first two full financial years post business combination
  • ii. Information about debt assumed in the business combination
  • iii. The effective tax rate on the underlying operating profit of the acquired business
  • iv. Disclosure of indicators that triggered the quantitative impairment test
  • v. Improvement to the disclosure requirements in IFRS 8 Operating Segments
  • vi. Disclosure of total net assets, less goodwill

Most ASAF members agreed with the need for improving disclosures about business combinations, goodwill and impairment although they expressed mixed reviews about the approaches that the Board tentatively decided to consider above. For full feedback on the disclosures from ASAF, please refer to Agenda Paper 18B (paragraphs 16-22).

Staff recommendation

The staff recommend not to expand the research objective and to perform a complete review of the disclosure objectives and requirements of IFRS 3 and IAS 36.

Further, the staff ask the Board to provide comments or suggestions on the additional work detailed in Agenda Paper 18B (paragraphs 29–30, 33–34 and 37).


The Board agreed with the staff recommendations. Board members conceded that it might be difficult to identify appropriate disclosures to assess the subsequent performance of an acquisition. Several Board members said that the staff should start with the disclosure objectives before thinking about specific disclosures. One Board member pointed out that entities are providing different information with regard to subsequent performance of an acquisition. This includes profit/revenue development, internal contributions, segment information or comparing actuals with assumptions. One Board member confirmed that segment information was widely used to get information on subsequent performance of acquisitions.

One Board member said that it should be analysed how investors and analysts would use the disclosures. The analyst Board member replied that goodwill was not the main focus, but rather the total consideration and the return on that consideration. It was noted that the staff should also identify whether there is an actual lack of disclosure requirements or whether it was a compliance issue, i.e. the existing disclosure requirements are ignored or misunderstood.

The staff was planning to seek feedback from GPF and CMAC, however they are aware of the time constraints and perhaps it would be more useful to do outreach with smaller groups instead of waiting for the next joint GPF and CMAC meeting.


13 of the 13 Board members present voted in favour of the staff recommendation.

Discussion paper outline (Agenda Paper 18C)

In this paper, the staff propose a draft outline for the DP. The sections of the DP will be as follows:

  • Summary and invitation to comment
  • Background and objectives of the project
  • Improving disclosures
    • Performance of the acquisition
    • Other disclosure improvements
    • Items considered but not recommended by the Board
  • Simplify the impairment test
    • Simplifying the calculation of value in use
    • Other simplifications
    • Items considered but not recommended by the Board
  • Simplifying the accounting for goodwill
    • Reintroduction of amortisation of goodwill
    • Relief from mandatory annual quantitative impairment testing of goodwill
    • Other simplifications
    • Items considered but not recommended by the Board
  • Conclusions

The paper does not contain any staff recommendations.


There was no significant discussion on this paper.

Related Topics

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.