Joint IASB — FASB education meeting

Date recorded:

Goodwill and Impairment: Cover Paper (Agenda Paper 18)

Both the FASB and the IASB have on their respective agendas projects covering the accounting for goodwill and intangible assets acquired in a business combination. Those projects do not constitute a joint project. However, both boards previously decided to monitor each other’s work because of the largely converged accounting models for business combinations.

The purpose of this meeting was to provide an opportunity for FASB and IASB members to discuss:

  • The objective and scope of their respective projects
  • Similarities and differences in feedback received on the FASB’s Invitation to Comment (ITC) Identifiable Intangible Assets and Subsequent Accounting for Goodwill and the IASB’s Discussion Paper DP/2020/1 Business Combinations — Disclosures, Goodwill and Impairment
  • The tentative decisions that the FASB has made based on the feedback received to date.

The boards were not being asked to make any decisions.

The following agenda papers were provided for this topic:

  • FASB Agenda Paper 18A—Identifiable Intangible Assets and Subsequent Accounting for Goodwill. This paper summarises feedback that the FASB received on its ITC, subsequent outreach efforts and the tentative decisions made by the FASB as at the end of June 2021
  • IASB Agenda Paper 18B—Business Combinations—Disclosures, Goodwill and Impairment. This paper summarises feedback that the IASB received on its DP.

Questions and comments by IASB and FASB members

  • The FASB Chairman noted that both boards identified similar issues as to whether the existing standards provide useful information. A FASB member echoed this and said that she had come to the same conclusion as the IASB that there is no more room to improve the existing impairment models. She said that in the US the model causes a lot of cost for only incremental information. She thinks that this shows that both the accounting model and the disclosures need to be reassessed. Several IASB members agreed that none of the options to change the impairment model would mean a significant improvement, but there could be smaller improvements that meet the cost-benefit condition. It was the package of changes that would have to be assessed as to whether it provides more useful information (i.e. accounting plus disclosures, rather than either or).
  • One IASB member asked what FASB members’ views were on disclosures. The FASB Chairman responded that the objective of the goodwill project was to provide better information and disclosures play an important role in that. A FASB member said that they are waiting to see whether stakeholders raise the broader issue of business combinations in the agenda consultation and depending on that a broader project would be added to the work plan.
  • An IASB member said that amortisation would take away a lot of the impairment, but that could be useful information. In an amortisation model, the impairment requirements (on top of amortisation) could be refined so they complement the useful information of amortisation.
  • An IASB member noted that the FASB’s default for amortisation period is ten years. She asked how much the FASB would expect that entities would deviate from that default period. The FASB staff responded that only 6 of 40 participants in a large public companies survey had stated that they would not deviate from the ten years. The rest of them said they would look into factors that might cause deviation from the ten years. A FASB member added that they have heard stakeholders asking for a much shorter period while others have asked for a much longer period, so the default is a compromise. An IASB member observed that offering a default period would discourage preparers who choose that default period from making disclosures about how and why they selected that period. The FASB Chairman and Vice Chairman responded that the FASB intends to encourage preparers to deviate from the default and would then require disclosure of why they deviated. The FASB will provide a list of factors an entity needs to consider when estimating useful life and the ten years should really only be a default if entities cannot estimate the useful life reliably.
  • The IASB Vice Chair asked whether basing the estimation of useful life of goodwill on the expected payback period (as stated by FASB) would be based on how quickly the entity expects to recover the investment or how long the entity expects to receive the benefits of the acquisition. The FASB staff responded that it is a mix of both.
  • An IASB member asked what the FASB’s provision was for a change in estimate in the amortisation period. The FASB staff said that reassessments are not required, but preparers are not precluded from reassessing.
  • An IASB member asked whether the FASB had considered a higher unit of account than reporting unit for goodwill disclosures, such as segments. The FASB Chairman said that this was discussed but it would depend on whether amortisation was introduced or not. One FASB member added that she would prefer a reporting unit level as it would compel preparers to explain the reporting unit. Also, there would be more shielding on a reporting segment level given the high level of aggregation. Another FASB member echoed this by saying the reporting unit level was designed to identify impairments, so reporting on that level would be the most sensible.
  • An IASB member asked why the FASB had not asked about subsequent performance disclosures other than on two areas in their ITC. An IASB staff member added to the question by asking whether they thought it would be inappropriate to include forward-looking information in the financial statements rather than in the MD&A (management discussion and analysis, the equivalent of management commentary in IASB terms). The FASB staff responded that at the time the ITC had been published, the focus was on goodwill accounting rather than disclosures on acquisitions. The IASB’s inclusion of disclosures on acquisitions in their DP had only occurred after the FASB ITC had been published.

Agenda Consultation: Cover Paper (Agenda Paper 24)

At the time of the meeting, both the IASB and the FASB were seeking feedback from stakeholders on their future agendas. The purpose of this meeting was to provide both boards with an opportunity to share comments and ask questions about these agenda consultations. The boards were not asked to make any decisions.

The following agenda papers were provided:

  • FASB Agenda Paper 24A: ITC Agenda Consultation
  • IASB Agenda Paper 24B: Request for Information (RFI) Third Agenda Consultation
  • IASB Agenda Paper 24C: Third Agenda Consultation — Feedback to date. This paper sets out a summary of the initial feedback the IASB has received on its RFI Third Agenda Consultation. The comment letter deadline for the RFI is 27 September 2021. Therefore, this paper only reflects preliminary feedback and does not include all feedback expected to be received on the RFI.

Questions and comments by IASB and FASB members

  • An IASB member noted that the FASB included in the ITC on their Agenda Consultation that they are asking whether they should define free cash flows. He asked whether that focus on cash indicated that the cash flow statement as a whole should be reworked. The FASB Chairman responded that the ITC was deliberately drafted open-ended to be able to receive views on all matters, including the cash flow statement.
  • A FASB member noted that the FASB had only received two comment letters from investors and asked the IASB how they elicit views from investors. The IASB staff responded that they are conducting direct outreach with investors. They also encourage investors to provide views via a survey that includes the same questions as the RFI.
  • An IASB member asked if the FASB have heard from stakeholders which assets should be included in the scope of the FASB project on digital assets. The FASB staff responded that they had not received specific feedback on this. The FASB Vice Chairman added that there was a question as to whether those assets should be accounted for as commodities or securities.
  • An IASB member asked whether for intangible assets the FASB asked in the ITC whether they should look only at disclosures or also at recognition and measurement. The FASB staff responded that there were mixed views so far from respondents. Some only asked for improvement on disclosures, others wanted both disclosures and recognition and measurement to be addressed. Another IASB member noted that the ITC observed that there were many companies who had a significant difference between book value and market capitalisation. He asked as to how this was related to intangible assets. The FASB Chairman responded that some stakeholders think that intangibles are responsible for that gap, but they would like to have more information on this. A FASB member added that the focus of investors has moved from balance sheet and cash flow statement to revenue. An IASB member said that the gap shows that the market is doing well but did not think that closing the gap would give useful information.
  • An IASB member asked what the FASB’s views were on convergence. In his views deviation from convergence increases costs for multinational companies. The FASB Chairman responded that the FASB looks at investor input when they assess costs and benefits and if the benefits of improving financial reporting outweighs the cost of divergence, then the FASB would accept that.
  • An IASB member asked how the digital tagging introduced by the SEC ten years ago has affected the way investors collect information (i.e. through digital or through paper) and whether and how that has impacted on the FASB’s standard-setting activities. A FASB member said that they have received feedback that the XBRL tagging requirements should be done simultaneously when developing new requirements. Standard-setting decisions have not been affected by that but the interaction of the standard-setting side and the XBRL side has improved within the FASB. The IASB Chairman said that while XBRL is one of the areas of digital delivery, but the IASB is currently exploring other ways beyond XBRL.
  • A FASB member asked about the IASB’s strategy with regard to the IFRS for SMEs Standard. The IASB staff said that anything coming out of the agenda consultation would not immediately affect the IASB’s strategy for the IFRS for SMEs Standard.

Supply Chain Financing (Agenda Papers 27A & 27B)

The purpose of this session was for the boards to discuss the work undertaken to date, and recent tentative decisions made, on their respective projects on supplier finance. The staffs provided a summary of each project before turning it over to the boards for discussion. The boards were not asked to make any decisions.

The following agenda papers were provided:

  • FASB Agenda Paper 27A: Disclosure of Supplier Finance Programs Involving Trade Payables
  • IASB Agenda Paper 27B: Supplier Finance Arrangements

Questions and comments by IASB and FASB members

  • A FASB member asked whether the IASB had conducted outreach with auditors on this topic. The IASB staff responded that the outreach so far focused on investors and banks, but they are hoping to receive auditor feedback by way of comment letters on the ED.
  • A FASB member asked how the IASB considered the issue that the transaction could be outside the boundaries of the reporting entity. The IASB staff responded that the project focuses on arrangements that were instigated by the buyer and would therefore be within the boundary of the reporting entity of the buyer. The IASB Vice Chair added that the IASB is proposing to require to disclose the line item in which payables subject to supplier financing are included. While IFRS 7 already requires making liquidity disclosures that are not limited to items recognised in the financial statements, the IASB wanted to emphasise that this is required.
  • A FASB member asked what the IASB expected in terms of disclosure of the payment terms, as they could range from 30 to 360 day. The IASB staff responded that instead of a weighted average, they would expect a range to be provided. The IASB Vice Chair added that it might be difficult to condense this information in a meaningful way.
  • An IASB member asked whether the FASB has included a requirement to disclose early repayments. The FASB staff replied that the FASB has decided not to require this disclosure.
  • The FASB Vice Chairman said that the information about those arrangements is often only reported to the entity on an anonymous and aggregated basis. He asked whether the IASB had heard from auditors whether they would be able to audit this information, which is provided by an external party. The IASB staff replied that so far they had heard about the cost aspect of this, but the staff thought that this cost would be outweighed by the benefits of providing useful information.
  • An IASB member asked whether the FASB had heard from stakeholders whether all supplier finance arrangements would be captured. The FASB staff responded that stakeholders had confirmed that the scope would capture most of those arrangements. The FASB Chairman added that the description of supplier finance arrangements was drafted in a more general way to ensure this.

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