Business Combinations - Disclosures, Goodwill and Impairment

Project History

​T​he objective of this IASB project is to explore whether companies can, at a reasonable cost, provide investors with more useful information about the business combinations those companies make.

In June 2015, the IASB completed the Post-implementation Review of IFRS 3 and in response to the feedback received decided to undertake improvements to the accounting and disclosures for business combinations.

In March 2020, the IASB published the Discussion Paper Business Combinations - Disclosures, Goodwill and Impairment ('the DP'). The DP examined whether:

• companies could provide better information in the financial statements about business combinations, in particular, information on the subsequent performance of a business combination;
• the impairment test could be made more effective at recognising impairment losses on goodwill on a timely basis and at a reasonable cost;
• amortisation of goodwill should be reintroduced;
• the impairment test could be amended to reduce its cost and complexity; and
• some intangible assets should be included within goodwill.

In March 2021, the IASB started its redeliberations of the project and considering the feedback received during its consultation of the DP. The IASB has tentatively decided to retain the objective of the project as per the DP and also to leave the scope unchanged.

In December 2022, the IASB added this project to its standard-setting programme, which now focuses on:

• improvements to the disclosure requirements relating to business combinations; and
• changes to the impairment test of cash-generating units containing goodwill in IAS 36.

In May 2024 the IASB published the Exposure Draft Business Combinations - Disclosures, Goodwill and Impairment ('the ED') which sets out a package of proposals that in the IASB’s view would result in companies providing better information - at a reasonable cost - about acquisitions, thereby responding to stakeholder concerns.

IASB Discussion Paper and EFRAG's response

In response to the IASB's DP that was published in March 2020, EFRAG published its draft comment letter in May 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, including the results from the outreaches and other events, and submitted its final comment letter to the IASB on 28 January 2021. In the comment letter, EFRAG supported the objective of the IASB's project, noting that there is room for improvement in goodwill accounting and related disclosures. EFRAG recommended the IASB to explore improvements to the current goodwill impairment test and the costs and consequences of reintroducing goodwill amortisation.

IASB Exposure Draft and EFRAG's response

In March 2024 the IASB published Exposure Draft Business Combinations - Disclosures, Goodwill and Impairment, proposing amendments to:

• IFRS 3 Business Combinations - in particular to improve company disclosures on the business combinations performance; and
• IAS 36 Impairment of Assets - in particular amendments to the impairment test of cash-generating units containing goodwill.

The deadline for comments on the IASB's ED was 15 July 2024.

In response to the IASB's ED, EFRAG, on 30 April 2024, published its draft comment letter, where it welcomed the IASB's efforts to improve the disclosure requirements in IFRS 3 and goodwill impairment test in IAS 36 at a reasonable cost to preparers. However, noting that there are still significant concerns, EFRAG asked for additional input from constituents on:

• specific aspects of the package of new disclosures, including application of the exemption, and proposed threshold approach to identify a strategic business combination;
• the proposal to provide quantitative information on expected synergies; and
• whether, in addition to the proposal to remove the requirement to use pre-tax cash flows and pre-tax discount rates in calculating value in use, the IASB should deal with existing tax issues, including the treatment of deferred taxes.