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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.

The purpose of this meeting was for the staff to provide to the Board their analysis of the feedback received on the project’s objective and scope, as detailed in Agenda Paper 18A.

Project objective and scope (Agenda Paper 18A)

In this paper, the staff provided the Board with an analysis of respondent’s feedback regarding the scope and objective of the project.

Background and feedback summary

Most respondents to the DP agreed with the objective of exploring whether entities can, at a reasonable cost, provide users with more useful information about business combinations, though there were some notable disagreements from respondents from Germany and Japan, with those who disagreed preferring to improve the impairment test.

The scope of the project was set out as improving disclosures about business combinations, addressing the subsequent accounting for goodwill, and reviewing other topics such as the presentation of equity excluding goodwill. Many respondents who commented on the project’s scope agreed with it, however many said that there seemed to be no unifying objective, instead of suggesting that disclosures are considered separately from the subsequent accounting for goodwill.

Some preparers said that cost appeared to be the unifying objective of the project, and that it seemed the Board considers the cost savings of simplifying the impairment test would offset the additional costs of improved disclosures. However, these preparers said the additional disclosure costs would likely be greater than the savings from simplifying the impairment test, and that the simplification of the impairment test should be a separate project in its own right.

Staff analysis

The staff set out a brief history of the project’s development, starting with the publication of the post-implementation review of IFRS 3 in June 2015.

Project objective

The staff do not think the Board should amend the project objective of providing more useful information about business combinations at a reasonable cost. They disagree with the respondents who perceive that there is an undue focus on disclosures.

The staff thinks that this perception of undue focus on disclosures may have arisen because of the wording in the DP, the project title, and the timing of the Board’s discussions.

Project scope

Some respondents to the DP said they do not consider that some of the topics included to be related and suggested instead that they are considered under separate projects.

The staff think the scope should currently remain unchanged as they agree with the Board that the topics included in the DP are linked and interdependent on each other. The staff acknowledge, however, that the scope may change in the future depending on the Board’s decisions on certain topics.

The paper identifies and analyses further some factors which may have led some respondents to consider some topics in the DP as unrelated.

Staff recommendation

The staff recommended that the Board does not change the project’s objective and scope at this stage of the project and will ask if the Board agree with this recommendation.

Board discussion

Board members generally supported the staff recommendation that the objective and the scope of the project should be maintained. Most points of discussion referenced the importance of improving the disclosures of subsequent performance of acquired entities.

The Board voted unanimously in favour of the staff’s recommendation.

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