Goodwill and impairment

Date recorded:

Goodwill and Impairment – Cover Paper (Agenda Paper 18)


The IASB is assessing whether it could improve the accounting for goodwill. The Board plans to publish a Discussion Paper in the second half of 2019, with a view to potentially amending IFRS 3 Business Combinations and IAS 36 Impairment of Assets.

At this meeting the Board discussed possible improvements to disclosures about acquisitions and whether entities should be given relief from having to assess goodwill for impairment annually.

Better disclosures for business combination (Agenda Paper 18A)

This paper was originally discussed at the April IASB meeting. The staff have added annotations reflecting comments made at the April meeting and the staff responses to those comments. In this summary we focus on the new staff analysis.   

IFRS 3 disclosures

Some Board members have previously expressed a view that boilerplate disclosures about business combinations could be caused by IFRS 3 not having clear enough disclosure objectives.

The staff think it would be helpful to have an objective that explains why users need the information being requested. That objective would be “to evaluate the extent to which the key objectives of the business combination are being achieved.”

The CODM (Chief Operating Decision Maker)

The staff have previously suggested that information on subsequent performance should be based on how the CODM monitors and measures whether the key objectives of the business combination are being achieved in the entity’s internal reporting.

In April, some Board members were concerned that a CODM approach might mean information on material business combinations might not be provided because it is not the CODM monitoring the acquisition. Some Board members thought that the threshold at which disclosure would be required should be set at a lower level of management than the CODM and if the information on subsequent performance monitored by that level of management is material, this information should be disclosed. Some Board members thought that some minimum prescribed information on subsequent performance should be required if the information is material to users, even if the CODM does not monitor the new investment. Such an approach is consistent with IFRS 8 Operating Segments, which requires specified disclosures even if they are not provided to the CODM. However, the staff think that identifying specific measures for subsequent performance that are suitable for all business combinations and satisfy needs of all users would not be feasible.

The staff continue to recommend that disclosure requirements be developed based on information provided to the CODM and that the Discussion Paper seek feedback on whether some minimum amount of information should be required, even if it is not information provided to the CODM.

Removing existing disclosure requirements

The Board decided, early in the project, not to conduct a full review of IFRS 3 disclosures. Some Board members are concerned that the discussions have focused mainly on adding disclosure requirements and that they could be criticised for not considering whether some current requirements do not generate useful information. The staff have therefore identified three items that could be candidates for removal, using the IFRS 3 post-implementation review feedback. The staff are also suggesting that the requirement to disclose revenue and profit or loss of the combined entity as if the business combination had occurred at the beginning of the annual period could be replaced. Instead, an acquirer should disclose revenue, operating profit or loss before acquisition-related transaction and integration costs and cash flow from operating activities since the acquisition date. Some Board members thought that this alternative approach might not provide sufficient information for users to understand the full year contribution of all material business combinations. They also noted that the equivalent information under US GAAP is required to be provided for two years.

Net tangible assets

In April some Board members said that a suggestion to require a sub-total on the statement of financial position highlighting tangible net worth should be investigated further.

The staff think a sub-total before goodwill and all intangible assets (tangible net worth) might provide information that in some circumstances could be “misleading” such as when the intangible assets have “finite and well-defined lives.” The staff see goodwill as being different. They state that although goodwill is an economic resource and has the potential to produce economic benefits, “direct measurement of goodwill is not possible and therefore, goodwill can only be measured as a residual amount.” They also state that goodwill also does not generate cash flows independently of other assets or groups of assets, and often contributes to the cash flows of more than one cash-generating unit (CGU).

The staff have suggested two candidates for the Board to consider as a suitable measure of net assets excluding goodwill:

  • (a) Total assets before goodwill, less total liabilities
  • (b) Total equity before goodwill

The staff have also said the Board should consider whether the selected sub-total should be required as a natural subtotal on the face of the statement of financial position, in a footnote or as a “free-standing disclosure, on the face of the statement of financial position.”

The staff think the Board should include a brief discussion of such sub-totals in the Discussion Paper.

Question for the Board

The staff plan to ask the Board for its preliminary views for the Discussion Paper at the June IASB meeting. To help the staff prepare for that meeting the staff have asked Board members if they have any further comments on their ideas about the disclosure objectives and requirements. Accordingly, no decisions are expected to be made at this meeting.

Board Discussion

The discussion was broad-ranging. Board members said it was difficult to look at components of the proposals. It is the whole package that needs to be considered. Several saw the package as offering some relief in terms of impairment testing, but to justify this, entities would need to be willing to provide more information about business combinations.

Although several Board members said they hadn’t changed their views on some matters, the important thing is that the Discussion Paper brings out all of the issues. One Board member said that it was critical to them that there be a requirement to provide some pro-forma information. Other members said that the requirements about pro-forma information are not sufficiently clear.

Consistent with this, a member said that qualitative explanations of differences in accounting policies, for example, are not a substitute for quantitative adjustments that demonstrate the actual implications of the change.

A member thought the CODM focus was not the best approach because the CODM focus was developed for segments. The member thought that acquisitions are likely to be monitored at lower levels. They thought a materiality overlay would be more effective.

Another member said that they want to understand why materiality does not seem to be drawing out information or filtering out excessive information before shifting to a CODM approach. However, seeing the different metrics they use to monitor business combinations could be helpful information for users. Other members expressed similar views to this. One member said that this is probably the most practical way to go.

One member asked what was expected of an entity if an acquiree is fully integrated into a segment very quickly. Is monitoring of that segment by the CODM and reporting that segment sufficient to meet the objective of assessing the business combination? The staff responded that this would not be monitoring the business combination and assessing them against their expectations. The entity would be expected to explain that in the financial statements.

One member questioned what the staff would expect in terms of monitoring something like a pharma business with a long horizon before some success might be expected.

One member said they were not supportive of having minimum disclosure requirements. Business combinations are undertaken for different reasons and the member thought it would be difficult specifying minimum disclosures when they are unlikely to be relevant to some business combinations. It is important if there are minimum disclosures that their purpose is clear. The staff are exploring this and at this stage do not support establishing minimum requirements for the reasons expressed by the Board member.

There were some concerns about possibly “relegating to the notes” the “before and after goodwill” measures of equity. The Chairman thought this would make the disclosure less effective. 

If there is a requirement to disclose costs, it will be important to clarify what the Board means by “costs” and what “integration costs” mean, for example.

The issue of the inconsistency in the accounting for internally created intangible assets and the equivalent acquired intangible assets is significant and has been raised by many standard-setting bodies. It is something that the IASB cannot ignore.

One member asked if more information about fair value sitting in OCI of the acquiree would be helpful.

Another member said that because the Board has still not decided whether to proceed with the approach to writing disclosure objectives and requirements as discussed in the Disclosure Initiative (see Agenda Paper 11). The member would object strongly to implying that this is the approach to which the goodwill project is committed.

Board decisions

No decisions were made.

Relief from mandatory annual impairment test (Agenda Paper 18B)

This paper presents the staff analysis of potential relief from mandatory annual impairment testing.

Indicator-based impairment test

The staff considered four approaches to moving away from an annual test of impairment. The Board could propose requiring a quantitative test of goodwill for impairment:

  • in the first year after a business combination, but subsequently only when there is an indication of possible impairment;
  • at least annually (and more frequently whenever there is an indication of possible impairment) for the first few years after a business combination, perhaps 3–5 years and subsequently only when there is an indication of possible impairment;
  • less frequently than annually, for example once every 3 years, and in the intervening periods only when there is an indication of possible impairment; or
  • only when there is an indication of possible impairment.

The staff intend to recommend that the Board should focus on the indicator-only approach (d), and the rest of the paper considers that approach.

Costs and benefits

The staff think an indicator-only approach could be less costly to implement than the current model and allow entities to apply the same impairment test for all CGUs, regardless of whether they contain goodwill or some identifiable intangible assets. On the other hand, the staff think such an approach is marginally less robust than the current model, could lead to some loss of information that users of financial statements might find useful and could slightly weaken governance over impairment tests.


In response to feedback from some users, the staff think the Board should consider requiring disclosure of the facts and circumstances triggering an impairment test, even if it did not eventually result in an impairment loss or reversal.


IAS 36 includes matters that could indicate that an asset is impaired. The staff think that if the Board decides to propose an indicator-only approach, it might want to review those matters. In particular, the Board could consider adding “the failure to meet the key objectives of the acquisition” as an indicator. 

Intangible assets with an indefinite useful life

The staff note that IAS 36 requires that intangible assets with an indefinite useful life be tested for impairment annually. The staff think that if the Board supports moving to an indicator-only approach for goodwill it should do the same for all intangible assets. In other words, intangible assets with an indefinite useful life would only have to be tested for impairment if there is an indication of impairment.

Question for the Board

The staff plan to ask the Board for its preliminary views for the Discussion Paper at the June IASB meeting. To help the staff prepare for that meeting the staff have asked Board members if they have any other issues they will need to consider if the Board decides to adopt an indicator-only impairment testing model for goodwill. Accordingly, no decisions were made at this meeting.

Board Discussion

The Chairman asked how the indicator-only approach compares to the US model.  The staff said they are “similar but different”. The US has a “more likely than not” compared to “an indicator that there may be an impairment”. The sense was that the IASB’s threshold is lower—i.e. quantitative tests would need to be undertaken with the IASB proposal more frequently than if the US model was used. However, because some of the ways the indicators are expressed are also different it is difficult to assess what the practical differences would be. A member commented later in the session that if the IASB adopts an indicator-only approach any ED should start with the US approach and improve it based on what could be 10 years of experience by then. One Board member noted the US test is in relation to fair value and not value in use.

A Board member said they had difficulty understanding the objective of this approach because the original objective was to address a perceived problem of “too little, too late”.  They were not sure if the problem is with the Standard or with application and enforcement of the Standard. Another member agreed that “too little, too late” was not being achieved but thought that the indicator approach was not going to make this issue any worse. It is an approach that has existed for a long time for other assets and if it works effectively it will eliminate a lot of obviously unnecessary tests of CGUs that are clearly operating profitably and are not impaired. The Chairman remarked that “the real problem is not too little, too late, it is too late and then a lot”. A member responded that they were not hearing from investors that “too little, too late” was a significant problem. The information content in any actual impairment is small.

The Vice-Chair said she had been persuaded to support an indicator approach, which was not her original inclination. She thought it should be accompanied by more powerful disclosures to give discipline. The Chairman asked if the reasons for the business combination and the expectations can be linked to the impairment indicators.

A Board member who did not agree with moving away from mandatory annual testing thought that any company with significant amounts of goodwill will always be doing a quantitative test. They were also concerned that if an entity is not doing the tests regularly it could undermine the quality of the testing. Another Board member said they agreed with that view, for the same reasons. They found it odd that the Board could not improve the impairment test and that the Board was now thinking of doing the opposite, by relaxing the test. If the Board does go ahead with an indicator approach they would keep a mandatory assessment immediately after the acquisition. One of the Board members who had spoken earlier agreed with these members. They were particularly concerned that goodwill gets absorbed into a CGU and by the time they assess for impairment there has been significant value loss but it is absorbed by the pre-acquisition headroom in the CGU.

Another member said that the effectiveness of the proposed approach rests with how well the indicators are specified. They asked if there was any evidence in the US of entities opting into the indicator approach (where it is an option) of concerns, failure to impair, or of opportunistic behavior. Another member said there is evidence of entities with book value of equity exceeding market value of equity, but they are not recognising impairments.

Another Board member said that goodwill and indefinite-life assets are different and would need convincing that they should have the same (indicator-only) approach to impairment.  

A member suggested that the IASB could require an explicit assertion that the carrying amount of goodwill is recoverable.

A member emphasised the point that had been made at the beginning of the session that the Board needs to look at this as a package. As the session concluded, the Chairman said that this is a very important issue and it is also a reputational issue for the IASB.

Board decisions

No decisions were made.

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