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.

In December 2022, the IASB agreed to move the project from the research programme to the standard-setting work plan.

The purpose of this meeting was to ask the IASB to make decisions about some of its preliminary views regarding reducing the cost and complexity of the impairment test, and some aspects of the proposed package of disclosure requirements in IFRS 3.

Estimating value in use (Agenda Paper 18A)

In the DP, the IASB held the preliminary view that the cost and complexity of the requirements in estimating value in use (VIU) could be reduced by, in particular:

• Removing the restriction on including cash flows from future restructurings, improvements, or enhancements
• Allowing the use of post-tax cash flows and discount rates

In both cases, many respondents agreed with these preliminary views.

The staff recommended that the IASB maintain its preliminary views, and propose that:

• The restriction in IAS 36 on including cash flows arising from a future restructuring to which an entity is not yet committed, or from improving or enhancing an asset’s performance, should be removed
• The requirement to assess assets or cash-generating units (CGUs) in their current condition is retained
• No additional safeguards for those cash flows beyond those that already exist in IAS 36 are included

The staff also proposed that:

• The explicit requirement to use pre-tax cash flows and pre-tax discount rates in estimating VIU is removed
• The use of internally consistent assumptions for cash flows and discount rates regardless of whether VIU is estimated on a pre-tax or post-tax basis is required
• The requirement to disclose the discount rates used is retained, but the requirement that the discount rate disclosed should be a pre-tax rate is removed

The IASB were asked to vote on both these proposals.

IASB discussion

When discussing the first staff recommendation to lift the restriction on including cash flows arising from a future restructuring to which an entity is not yet committed, or from improving or enhancing an asset’s performance, IASB members were generally in favour. Some IASB members believed adjusting approved cash flow forecasts to meet this requirement resulted in artificial forecasts that do not represent management’s best estimate of the performance of the CGU. Others observed that there are sufficient safeguards elsewhere in the requirements.

However, some IASB members expressed concerns that this amendment may fail to address feedback that impairments are often recognised too late, which disagrees with the concept of testing assets in their present condition.

Some IASB members supported this recommendation on the basis that it would give rise to further feedback when released in the exposure draft.

When asked to vote on the first recommendation, the 11 of the 13 IASB members voted in favour of the staff recommendation.

There was limited discussion regarding the second recommendation to permit the use of post-tax discount rates, as IASB members generally agreed with the staff recommendation. It was suggested that a requirement to disclose whether the discount rate used is pre- or post-tax is added.

When asked to vote on the second recommendation, the IASB voted unanimously in favour.

Other suggestions to reduce cost and complexity (Agenda Paper 18B)

In the DP, the IASB set out its preliminary views on some other suggestions to reduce the cost and complexity of the impairment test, namely:

• Deciding not to clarify the difference between entity-specific inputs in VIU and market-participant inputs in fair value less costs of disposal (FVLCD)
• Deciding not to require a single method for measuring the recoverable amount instead of it being the higher of VIU and FVLCD

Many respondents gave feedback agreeing with these preliminary views. Therefore, the staff recommended that the IASB retain these preliminary views.

Further suggestions were raised by a few respondents, such as developing different requirement for entities in the financial services sector, clarifying whether FVLCD of a listed CGU should reflect a control premium, and allowing VIU to be estimated in a currency different to the one in which the cash flows are generated. The staff recommended that that IASB do not pursue providing additional guidance in these areas.

IASB discussion

There was limited discussion regarding the staff recommendations. When asked to vote, the IASB voted unanimously in favour of both recommendations.

Deleting disclosure requirements (Agenda Paper 18C)

In this paper, the staff recommended the removal of certain existing disclosure requirements in IFRS 3.

In the DP, the IASB stated that it would investigate whether any disclosure requirements in IFRS 3 could be removed without depriving investors of material information.

The staff reviewed stakeholder suggestions from comment letter respondents and a joint meeting of the Capital Markets Advisory Committee (CMAC) and Global Preparers Forum (GPF). From this, a number of existing disclosure requirements were identified that may be removed.

These were:

• Paragraph B64(h)—information about acquired receivables
• Paragraph B64(k)—the amount of goodwill expected to be deductible for tax purposes
• Paragraph B64(m)—acquisition-related costs (paragraphs 30–35)
• Paragraph B66—business combinations completed after the end of the reporting period
• Paragraph B67(d)(iii)—a line item in the required reconciliation between opening and closing goodwill balances that relates to changes resulting from the subsequent recognition of deferred tax assets
• Paragraph B67(e)—the amount and an explanation of any material gain or loss recognised in the current reporting period that relates to the identifiable assets acquired or liabilities assumed in a business combination that was effected in the current or previous reporting period

The staff identified, on the basis of respondent’s feedback and their analysis, that:

• Paragraph B64(h) could be removed, as doing so would reduce costs without depriving users of useful information
• Paragraph B64(k) should not be removed because users said the information is useful, and similar information would not always be /disclosed by applying other IFRS Accounting Standards
• Paragraph B64(m) should not be removed, as it could provide useful information to users
• Paragraph B66 should not be removed, as it results in users receiving useful information
• Paragraph B67(d)(iii) could be removed, as it has become redundant since IFRS 3 was amended in 2008
• Paragraph B67(e) could be removed, as the information would be provided applying other IFRS Accounting Standards

The staff therefore recommended that the IASB delete from IFRS 3 Paragraph B64(h), Paragraph B67(d)(iii), and Paragraph B67(e).

IASB discussion

IASB members generally agreed with the staff recommendation to remove the suggested disclosure requirements.

When asked to vote on this recommendation, 12 of the 13 IASB members voted in favour.

IASB members also requested to formally vote on the recommendation in the agenda paper that was not tabled as a question to the IASB, i.e. the recommendation not to make amendments to IAS 34 related to business combinations.

When asked to vote on this recommendation, the IASB voted unanimously in favour.