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Business Combinations—Disclosures, Goodwill and Impairment


Project History

T​he objective of this IASB research project is to consider how to address issues reported during its Post Implementation Review of IFRS 3 Business Combinations (PIR).

​During the course of the project, the IASB considered a number of ways to address the 'too little too late' goodwill impairment issue, and how it could improve the disclosures for business combinations. Some argue that one of the causes of the delayed recognition of goodwill impairment is the shielding effect created by internally generated goodwill and other factors. Another potential cause is that the impairment test does not directly measure the recoverable amount of the goodwill. To address these concerns, the IASB developed the headroom approach; however, the approach was considered overly complex and not explored further by the IASB.

After concluding that it would not be possible to make the impairment test significantly more effective, the IASB decided to refocus the objectives of the project as follows: 
  1. Objective A - Exploring whether to simplify the accounting for goodwill by permitting an indicator-only approach to determine when an impairment test is required; and/or reintroducing amortisation of goodwill;
  2. Objective B - Exploring whether to improve the calculation of value in use by permitting cash flow projections to include future restructurings and future enhancements to an asset; and the use of post-tax inputs in the calculation of value in use; and
  3. Objective C - Identifying disclosures to enable investors to assess management's rationale for the business combination; and whether the subsequent performance of the acquired business, or combined business, meets expectations set at the acquisition date.
At its meeting in June 2019, the IASB reached preliminary views on the project objectives mentioned above.  

In July 2019 the FASB issued an Invitation to Comment (ITC) on Identifiable Intangible Assets and Subsequent Accounting for Goodwill.  The FASB ITC considered similar issues to those being considered in the project. 

Recent developments

The IASB issued its Discussion Paper 2020/1 Business Combinations—Disclosures, Goodwill and Impairment on 19 March 2020 (the 'DP').

On 29 May 2020, EFRAG published its draft comment letter in response to the IASB's DP 2020/1 Business Combinations—Disclosures, Goodwill and Impairment and invited constituents to provide their views on the proposals. Comments on the draft comment letter were requested by 30 November 2020.

During the consultation period, EFRAG organised, co-organised and participated in various webinars to stimulate the debate and to learn constituents views on the proposals. EFRAG also consulted preparers on the proposals by means of a questionnaire, interviews and field tests. The latter was carried out in co-operation with the IASB.

From November 2020 to January 2021, EFRAG considered the various input received and submitted its comment letter to the IASB on 28 January 2021.

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