Business Combinations – Disclosures, Goodwill and Impairment
The International Accounting Standards Board (IASB) has recently issued for comment DP/2020/1 Business Combinations—Disclosures, Goodwill and Impairment (the DP).
In issuing the DP, the IASB’s objective is to improve the information entities provide to investors, at a reasonable cost, about the acquisitions those companies make. Better information should help investors to more effectively hold an entity's management to account for its acquisition decisions.
The DP sets out the IASB’s preliminary views that the IASB should:
- improve disclosures about acquisitions – this could include introducing disclosure requirements for information about management’s objectives for acquisitions and how acquisitions have performed against those objectives;
- retain the impairment-only model for goodwill, rather than reintroducing amortisation of goodwill;
- provide relief from the mandatory annual impairment test of goodwill;
- amend how value in use is estimated, to simplify the impairment test;
- require the presentation of total equity excluding goodwill on the balance sheet, and;
- retain the current requirements on the recognition of acquired intangible assets separately from goodwill.
The IASB also considered whether the impairment test could be made significantly more effective, at a reasonable cost to entities. The IASB’s preliminary view is that this is not feasible.
The IASB is seeking comments on whether:
- its suggested disclosure requirements for acquisitions would provide useful information and are feasible; and
- stakeholders have new evidence or new arguments on how companies should account for goodwill.
IASB Chair Hans Hoogervorst summarises the content of the DP in this brief video:
While further consultation is expected before the IASB issues any new or amended standards on the matters considered in the DP, such consultation will be influenced by comments received on the DP.
The XRB Board is committed to adopting international standards in the for-profit sector. Generally, once a standard has been issued by the IASB, the NZASB then issues the New Zealand equivalent standard without further consultation.
Commenting on the Discussion Paper
This is your opportunity to comment on this DP.
Comments are due to the NZASB by 2 November 2020 and to the IASB by 31 December 2020.
Send your comments—both formal and informal— to the NZASB using the upload form below.
We also encourage you to send comments directly to the IASB, with a copy to the NZASB. Your comments can be made electronically to the IASB website by clicking on the following link https://www.ifrs.org/projects/open-for-comment/. First-time users must register with IASB to submit electronically.
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