Background

This project results from the post-implementation review of IFRS 3 Business Combinations.

The feedback on the post-implementation review had revealed that impairment of goodwill is not always recognised in a timely fashion and that disclosures required by IFRSs do not provide enough information to understand whether the acquired business is performing as was expected at the time of the acquisition. There were also comments that the impairment test required for goodwill under IAS 36 Impairment of Assets is costly and complex.

The IASB therefore decided to investigate possible improvements to IFRS 3 Business Combinations and IAS 36 and a discussion paper was published on 19 March 2020.

The exposure draft published today considers feedback received on the discussion paper and proposes amendments to IFRS 3 and IAS 36 that aim at providing users with information that would allow them to better assess the performance of an entity’s business combinations and how efficiently and effectively management has used the entity’s economic resources to acquire these businesses.

Suggested changes

The proposed amendments in exposure draft IASB/ED/2024/1 Business Combinations — Disclosures, Goodwill and Impairment (Proposed amendments to IFRS 3 and IAS 36) are:

Proposed amendments to IFRS 3

• For strategic business combinations, which are a subset of material business combinations and are identified using a set of thresholds in IFRS 3, an entity would be required to provide information about its acquisition-date key objectives and related targets for the business combination and whether these key objectives and related targets are being met. An entity would only have to disclose information that is reviewed by its key management personnel.
• Entities would be exempted from disclosing some of the information if that information is commercially sensitive or would expose the entity to litigation risk.
• The exposure draft includes several other proposed amendments to the disclosure requirements in IFRS 3, including new disclosure objectives and disclosure requirements around expected synergies the strategic rationale for the business combination.

Proposed amendments to IAS 36

• The IASB proposes amendments to the impairment test in IAS 36 to reduce shielding by clarifying how to allocate goodwill to cash-generating units.
• Other proposed amendments regard the disclosure in which reportable segment a (group of) cash-generating unit is included and how an entity calculates an asset’s value in use. 

Other proposed amendments

• The exposure draft also proposes to amend the forthcoming IFRS 19 Subsidiaries without Public Accountability: Disclosures regarding disclosures about the strategic rationale for a business combination, the expected synergies, the contribution of the acquired business and the discount rate used in calculating the value in use.

Comments on the proposed changes are requested by 15 July 2024.

Effective date

The IASB will decide on the effective date for the proposed amendments after exposure. The IASB proposes to require an entity to apply the amendments prospectively. Earlier application would be permitted.

Additional information

Please click for:

• IASB press release
• Access to the exposure draft on the IFRS Foundation website
• Snapshot offering an overview of the proposals
• Short video explaining the proposals
• Video with Board member Zach Gast explaining the proposals
• Our iGAAP in Focus newsletter explaining the proposed amendments
• Our IAS Plus project page on Goodwill and impairment