Goodwill and impairment

Date recorded:

Overview of the feedback on the Discussion Paper (Agenda Paper 18A)


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 paper was to provide the Board with a high-level summary of the feedback on the discussion paper.

Staff analysis

In the paper, the staff provided high-level feedback on the following areas:

  • Project objective — Most respondents agreed with the objective of exploring whether entities can, at a reasonable cost, provide users with more useful information about business combinations. Some in Germany and Japan thought the focus should be on improving the impairment test.
  • Overall package — There were mixed views on whether the package of preliminary views had a unifying objective and some respondents suggested that the accounting for goodwill should be considered separately from the improvements to disclosure requirements in IFRS 3.
  • Subsequent performance of business combinations — Mixed views on disclosure including most users agreeing and most preparers disagreeing with the Board’s preliminary views.
  • Targeted improvements to existing disclosures — The disclosure requirements on synergies attracted most comments with mixed views including that ‘synergies’ would need to be defined. Respondents generally agreed that new disclosure objectives be added and a requirement to disclose debt and pension liabilities obtained in a business combination. Many respondents disagreed with adding a requirement to disclose operating cash flow information.
  • Subsequent accounting for goodwill — Most respondents agree that it is not feasible to design a more effective impairment test, however, suggestions were made on how the application could be improved. Respondents were still divided on whether to reintroduce amortisation but did not provide new conceptual arguments in favour of either approach. However, some respondents said that the limitations of the impairment test observed in practice provided new practical evidence that supported reintroducing amortisation of goodwill. Most respondents said that convergence on this topic with US GAAP was desirable.
  • Simplifying the impairment test — Most respondents did not support the preliminary view to implement an indicator-based impairment test for goodwill. Almost all respondents supported allowing the use of post-tax cash flows and discount rates. Many respondents supported inclusion of asset enhancement or restructuring cash flows but with suggestions of constraints.
  • Other topics — Almost all respondents disagreed with the Board’s preliminary view that it should require an entity to present in its statement of financial position an amount representing total equity excluding goodwill. Most respondents agreed with the Board’s preliminary view that it should not develop proposals to include in goodwill some separately identifiable intangible assets recognised in a business combination. Some respondents commented that the Board should consider undertaking a broader scope project on intangible assets.

Board Discussion

The Board considered the feedback on the proposals in the discussion paper in relation to disclosure:

  • A number of Board members raised questions around the focus on the CODM in the proposals. In particular, they asked the staff to provide details of any alternatives to this approach provided by respondents. In relation to this it was proposed that consideration should be given as to whether a concept of materiality could be used as an alternative.
  • Board members discussed the concerns raised by respondents around commercial sensitivity and asked the staff to analyse whether the examples highlighted would cause genuine concern in practice.
  • Some Board members requested additional analysis on the information required by users or discussed by investors in relation to the post acquisition information disclosures.
  • One Board member suggested that it should be considered whether the proposed disclosures all belong in the financial statements or whether some would be more appropriate in management commentary in light of the Primary Financial Statement project.

The Board also considered the feedback in relation to the subsequent accounting for goodwill:

  • Board members highlighted that there were mixed views among users in relation to supporting the reintroduction of amortisation with more users being in support of this than previously.
  • Several Board members asked the staff to elaborate on the feedback around the limitations of the impairment test as practical evidence in support of the amortisation test.
  • A number of Board members noted that there appeared to be support for convergence with US GAAP but that this should not be the prime criteria for selecting the accounting model. One Board member requested further detail on whether convergence should be sought only across the broad topic of goodwill accounting or at a more granular level, for instance, on how the period of amortisation might be determined.
  • One Board member commented on the presumption from feedback that the use of indicators for determining whether an impairment test required would result in less impairment being recognised. They argued that evidence in the US that counters this view should be considered.

No decisions were taken by the Board.

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