IASB issues Discussion Paper 2020/1: Business Combinations – Goodwill and Impairment

The IASB has issued a discussion paper on how companies account for acquisitions and the subsequent accounting for goodwill that arises from business combinations. IFRS 3, Business Combinations was issued in 2004, and the discussion paper aims to evaluate how IFRS 3 has served the needs of financial statements users since it became effective. A discussion paper precedes an eventual exposure draft, which may be an outcome if the IASB feels that standard setting should be undertaken to change the existing requirements of IFRS 3.

Key aspects of the discussion paper include the following preliminary views:

• The need for improved disclosures for business combinations, which would allow users of financial statements to evaluate the performance of acquisitions against the intentions and targets established by management;
• The retention of the fundamental accounting model for goodwill (i.e. record and impair), meaning the Board’s preliminary views reject the reintroduction of a amortisation approach for goodwill;
• A requirement that entities present a ‘total equity before goodwill’ in the statement of financial position, essentially ‘carving out’ the amount of total equity attributable to the carrying value of goodwill; and
• Targeted improvements to the existing goodwill impairment test, including allowing a post-tax discount rate to be used, removing the restriction on including cash flows from uncommitted future restructurings and asset enhancements, and relief from the requirement to perform the test annually if no indicators of impairment exist.

The discussion paper is open for comment until 15 September 2020. 

The publication may be accessed here. A summarised ‘snapshot’ may be accessed here.