Goodwill and impairment

Date recorded:

Cover paper (Agenda Paper 18)

In March 2020, the IASB published DP/2020/1 Business Combinations—Disclosures, Goodwill and Impairment. The comment period for the DP ended on 31 December 2020.

In 2021, the IASB discussed the feedback received in response to the DP and decided to prioritise, amongst other things, performing further work to make decisions on the package of disclosure requirements about business combinations and to then redeliberate its preliminary view that it should retain the impairment-only model to account for goodwill.

As part of the IASB’s work, the staff have performed further analysis on specific aspects of feedback on the subsequent accounting for goodwill.

The purpose of this meeting was to provide the IASB with a summary of the staff research. The agenda paper also provided information about the project plan and how this research is relevant to that plan.

The IASB were not asked to make any decisions during this session.

Estimating the useful life of goodwill (Agenda Paper 18A)­

This paper summarised the feedback from the staff’s research into whether it is feasible to estimate a useful life of goodwill.

Feasibility of estimating the useful life of goodwill and the pattern in which it diminishes

Feedback on whether entities can reliably estimate the useful life of goodwill is mixed.

Some respondents said making such an estimate would be no more challenging then estimating the useful life of other tangible or intangible assets, while others said it is less straightforward when goodwill does not have an observable finite life. Furthermore, academic research has highlighted stakeholder concerns about the reliability of managements’ estimates of the useful life of goodwill.


Feedback on the auditability of the useful life of goodwill is also mixed.

A few respondents indicated auditability of managements’ estimates of the useful life of goodwill as a possible area of concern, for example because of auditability issues related to determining the amortisation period and the substantial judgement involved.

However, some respondents indicated auditing managements’ estimates of the useful life of goodwill would be no more difficult and costly than auditing other estimates and judgements, such as those used in the impairment test.

Most auditors who responded indicated application guidance and a cap on the useful life of goodwill would be necessary to audit and enforce the requirements.

Usefulness of information associated with managements’ estimates of the useful life of goodwill

Views on the usefulness of the information associated with the useful life of goodwill are also mixed.

Some respondents said managements’ judgements about useful life could provide useful information, such as around managements’ expectations of the period over which an entity expects to realise the benefits associated with goodwill. However, others said the amortisation change can appear arbitrary and would not provide useful information for users because of the difficulty of estimating the amortisation period and pattern of goodwill consumption.

The staff observed that the usefulness of information provided is contingent on the reliability of the of estimate of useful life, which is in turn contingent on the enforceability of the requirements.

IASB discussion

Most IASB members thought the research performed was comprehensive and useful, with some commenting that there is now probably sufficient evidence in order to form a view. Others commented that there is unlikely to be additional evidence to gather that would be sufficient to change the opinions of respondents of either view.

It was noted that feedback provided from respondents represented potential inherent biases from their particular group, and that it would be important to avoid generalising from anecdotal evidence or evidence from small samples.

Some members observed that, as each individual business combination is different, differing, or seemingly incomparable disclosures are not necessarily a problem, whereas enforcing ‘false’ comparability by including a cap on the useful economic life of goodwill would be more problematic.

Some members also noted that the judgements made in determining an economic life for goodwill would be auditable, highlighting that all respondents who were auditors said this would be the case and that other judgements and estimates are made by management which are audited.

Some members observed that if the model were to change, disclosure requirements would need to be established to ensure that important information provided by impairment testing disclosures are not lost though others observed that this could still lead to issues around commercial sensitivity.

Potential consequences of transitioning to an amortisation-based model (Agenda Paper 18B)

This paper summarised feedback from the staff’s research into the potential consequences of transitioning to an amortisation-based model.

Feedback from respondents is mixed, with some viewing the consequences of transition as limited while others said the consequences would be significant.

Many respondents highlighted the significant size of goodwill balances and the potential impact of retrospectively recognising amortisation on these balances. It was also highlighted that such adjustments could restrict entities’ access to capital markets, hinder their ability to make distributions, and impact their credit ratings and compliance with debt covenants.

However, other respondents said that these consequences would not be so significant if entities were given sufficient time to transition, thereby allowing renegotiation of debt covenants, or if the transition to an amortisation-based model were done prospectively rather than retrospectively. It was also noted that, in some jurisdictions, the ability to make a distribution is dependent on the separate financial statements of the entity, in which goodwill balances are generally insignificant.

IASB discussion

IASB members noted again the mixed views between respondents.

Some IASB members said that the respondents’ concerns regarding transition difficulties provided good reasons for maintaining an impairment-only model, whilst others, noting the significant changes on transition to other new requirements, such as IFRS 16, said that such difficulties are no impediment, and should not be decisive when choosing which model for the subsequent accounting of goodwill to adopt.

Some IASB members observed that much of the feedback focused on potential negative impacts and the extent to which they are significant, but that there was no real understanding of any benefits that may arise from change to an amortisation model.

Most IASB members agreed that any decisions should be made irrespective of the impacts of transition, but that this feedback provided useful context to the implications of any such decision.

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