Goodwill and impairment

Date recorded:

Cover Paper (Agenda Paper 18)

In March 2020, the Board published Discussion Paper DP/2020/1 Business Combinations— Disclosures, Goodwill and Impairment which included the Board’s preliminary views to address feedback the Board heard during the post-implementation review of IFRS 3 including:

  • a. Disclosing information about business combinations
  • b. Testing goodwill for impairment—effectiveness and cost
  • c. Whether to reintroduce amortisation of goodwill
  • d. Recognising intangible assets separately from goodwill

The purpose of this meeting is to provide a summary of feedback on particular aspects of the DP—feedback from users of financial statements and feedback on disclosing information about business combinations, the effectiveness of the impairment test and whether to reintroduce amortisation of goodwill.

The staff will present agenda papers 18A-18F which are summarised below. 

Feedback overview (Agenda Paper 18A)

This paper is unchanged from the paper presented at the March 2021 meeting. The paper was not discussed.

Feedback from users of financial statements (Agenda Paper 18B)

The key messages from this paper were:

  • Almost all users supported the preliminary view to enhance disclosures for business combinations and most users suggested that existing disclosures do not provide sufficient useful information. Many users are interested in information about subsequent performance of business combinations but some were sceptical about whether the disclosures proposed would provide useful information
  • Users were split on the issue of whether to reintroduce amortisation of goodwill
  • Most users agreed that existing requirements regarding recognition of intangible assets acquired should not be amended

Board discussion

The Board discussion centred on the main topics in the DP:

Disclosures of subsequent performance

  • Commercial sensitivity: Many Board members commented on the potential for required disclosures being commercially sensitive as there was some scepticism from the user group about whether this mitigating factor would be used appropriately by preparers. One Board member suggested that it would be useful to get a common level of understanding of where this might be an issue between users and preparers.

Granularity: A number of Board members touched on the issue of how granular the disclosures of subsequent performance are expected to be and whether there is a shared expectation between stakeholders and the Board. One Board member was concerned about the overload of disclosures and another Board member proposed that the staff should develop some examples to illustrate the level of granularity expected to ensure that this could be clear during discussion.

Reintroduction of amortisation

Some Board members commented on the potential for support for amortisation from users to be dependent on other decisions to be made by the Board. As an example, support for amortisation may be reliant on the useful life of goodwill being based on a transaction specific approach rather than full support irrelevant of how the useful life is calculated.

Some Board members commented that for users the disclosures around the economics of a transaction appear to be more important than the subsequent accounting for goodwill and, as such, if the required disclosures are appropriate then there will be less pressure on the amortisation question.


It was noted that convergence is not considered to be fundamental by users as they would rather the best outcome was reached even if it meant that Standards are not converged. Some Board members suggested that where there are split views on the major issues, convergence between US GAAP and IFRS may become a more crucial part of the decision-making.

Disclosure on the subsequent performance of business combinations (Agenda Paper 18C)

The key messages from this paper were:

  • As above, almost all users, and many others, agreed that information on subsequent performance of the business should be enhanced based on information reviewed by management
  • Many respondents raised concerns about the monetary and proprietary costs of providing this information
  • Many respondents suggested the information should be provided in management commentary rather than in financial statements

Board discussion

The Board discussion on this paper focused on the following significant topics:

Proposed disclosures in the ED

Several Board members mentioned that the disclosure requirements would be the most crucial part of the project and should be prioritised. One Board member, in response to comments from preparers on cost asked the staff to distinguish between information that was available to an entity because it was used to establish the price of a business and information that would have to be produced separately.

Location of disclosure

Several Board members agreed that it was appropriate for the proposed disclosures to be located in the notes to the financial statements based on the Conceptual Framework which allows methods, assumptions and judgements used in estimated amounts to be disclosed. Given that judgements and assumptions go into determining the price and, therefore, goodwill, it is appropriate to include this disclosure in the notes.

One Board member disagreed with this view arguing that neither the price nor goodwill are an estimate but that the price is a fact and the value of goodwill is driven by that price. As such, the Conceptual Framework does not allow for information that drives the price of an acquisition to be included in the notes and it would be more appropriate within management commentary.

One Board member suggested that a cross reference from the notes to management commentary could be specifically allowed for but that the difference between enforcement in management commentary and financial statements varies greatly and this should be taken into account.

Commercial sensitivity

As noted above, several Board members reiterated the proposal that the staff should develop some examples to illustrate the level of granularity expected to ensure that this could be clear during discussion.

One Board member noted that several Global Preparer Forum members held the belief that these disclosures may lead to more rational decisions on M&A transactions if there was only limited scope for not disclosing due to commercial sensitivity.

There were mixed views on whether a framework could be developed to help the Board determine what is commercially sensitive—those opposed believed that this was too entity and jurisdiction-specific and would not be possible.

Management approach

One Board member highlighted that there are several aspects to the management approach that need to be considered. These are in relation to whether the decision on which acquisitions the disclosures are required for and whether this should be dictated by materiality or the chief operating decision maker (CODM), whether the CODM is the appropriate level for this screening to take place and whether the metrics are those reviewed by the CODM or a specific set.

Several Board members agreed in particular with the need to consider whether material information could be missed by only requiring information reviewed by the CODM.

Improvements to existing IFRS 3 disclosure requirements (Agenda Paper 18D)

The key messages from this paper were:

  • There was general support for adding additional disclosure objectives to IFRS 3 and requiring disclosure of material liabilities arising from financing activities and defined benefit pension liabilities at the time of a business combination
  • There were mixed views, with disagreement from preparers in particular, on the Board’s preliminary views to add a requirement to IFRS 3 to require an entity to provide quantitative information on the amount of expected synergies arising from a business combination, and to retain and amend the information provided about the contribution of the acquired business

Board discussion

In relation to the proposed disclosures on synergies, one Board member asked for additional clarity in the requirements that these are only intended to be required on acquisition not on an ongoing basis. Additionally, it would be useful for users if both the type of synergy as well as the value were required.

Another Board member commented that there should be a careful assessment about when synergy information can be provided in various M&A transactions as these are not always quantified and do not always reflect the value of an acquired business.

In relation to pro forma information one Board member commented that there was diversity in practice in the information currently disclosed and time should be spent on understanding how to balance what the users want with what preparers can provide.

Another Board member agreed with stakeholders that there was a question to be answered around whether benefits outweigh the costs in relation to disclosure of pro forma information for cash flow from operating activities.

Effectiveness of the impairment test (Agenda Paper 18E)

The key messages from this paper were:

  • Most respondents agreed that it is not feasible to design a significantly more effective impairment test at a reasonable cost
  • Many respondents suggested that application of the impairment test could be improved and suggestions were made for additional disclosure requirements to combat management over optimism
  • It was also suggested that additional guidance could be developed to improve the level at which goodwill is allocated to CGUs to reduce the ‘shielding’ effect

Board discussion

This paper was not discussed and will be added to the agenda for the next Board meeting.

Subsequent accounting for goodwill (Agenda Paper 18F)

The key messages from this paper were:

  • The views of respondents on whether amortisation should be reintroduced remain mixed
  • No new conceptual arguments were put forward although some respondents suggested that there has been new practical evidence since the introduction of IFRS 3 in 2004 that the impairment test is not sufficiently effective
  • Most respondents said that convergence with US GAAP was desirable but many did not think that their view on reintroduction of amortisation would change in order to result in convergence

Board discussion

This paper was not discussed and will be added to the agenda for the next Board meeting.

The Board was not asked to make any decisions in relation to any of the papers.

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