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Business Combinations—Disclosures, Goodwill and Impairment

Project Type:

Influencing

Status:

Active

Milestone:

Monitoring

Completed Date: 20 September 2024

Background

In March 2020 the International Accounting Standards Board (IASB) published its Discussion Paper Business Combinations – Disclosures, Goodwill and Impairment (DP) ,the IASB’s comment deadline was 31 December 2020.

The Discussion Paper (DP) follows the post-implementation review of IFRS 3 Business Combinations. The UKEB responded to this DP see the Final Comment Letter - Business Combinations—Disclosures, Goodwill and Impairment below which was published on 29 January 2021. Having redeliberated its preliminary views, the IASB decided in December 2022 to add this project to its standard-setting programme.

The IASB’s project objectives are:

  • to provide better information on acquisitions to investors
  • to ensure timely recognition of impairments
  • to make the impairment test less costly

On 14 March 2024 the IASB issued an Exposure Draft: IASB/ED/2024/1 Business Combinations—Disclosures, Goodwill and Impairment (ED), the IASB’s comment deadline was 15 July 2024. In this project, the IASB is exploring whether companies can, at a reasonable cost, provide investors with more useful information about the business combinations those companies make. The IASB’s proposals build on its preliminary views expressed in the DP published in March 2020 following the IASB’s Post-Implementation Review of IFRS 3 Business Combinations. The UKEB responded to this ED see the Final Comment Letter - Business Combinations—Disclosures, Goodwill and Impairment below which was published on 22 July 2024 and submitted to the IASB on 19 July 2024. The UKEB is broadly supportive of the package of proposed amendments to the disclosure requirements in IFRS 3 Business Combinations and the impairment test in IAS 36 Impairment of Assets. The proposed amendments would provide investors with better information about the post-acquisition performance of acquired entities. The Final Comment Letter sets out our observations and recommendations, reflecting our UKEB outreach and desk-based research.

The ED contains proposed amendments to:

  • IFRS 3 Business Combinations—in particular, to improve the information companies disclose about the performance of business combinations; and
  • IAS 36 Impairment of Assets—in particular, amendments to the impairment test of cash-generating units containing goodwill.

Key IASB Proposals

The DP’s proposals include:

  1. Maintain the impairment-only model and do not develop proposals to reintroduce amortisation
  2. Remove the requirement for an annual quantitative impairment test and require a quantitative test only when there is an indicator of impairment
  3. Reduce the cost and complexity of the impairment calculation through targeted simplifications
  4. Disclose management’s strategic rationale, objectives, metrics and expected synergies for acquisitions
  5. Present total equity excluding goodwill on the balance sheet, to highlight the unique nature of goodwill

The ED’s proposals include:

  1. New disclosure objectives and additional disclosures requirements for some business combinations (in IFRS 3 Business Combinations)
  • Quantitative information about expected synergies for all material business combinations;
  • Management’s key objectives and targets, and subsequent performance against those acquisition-date metrics, for a subset of ‘strategic’ business combinations;
  • Exemption from disclosing some of the information in specific circumstances;
  • Identifying information using an entity’s key management personnel (KMP);
  • Other amendments to existing disclosure requirements.
  1. Accounting for goodwill (in IAS 36 Impairment of Assets):
  • Retain the impairment-only model (no amortisation);
  • Retain requirement to perform impairment test annually for cash-generating units (CGUs) containing goodwill;
  • Simplifications to the calculation of value in use;
  • Clarifications on how an entity allocates goodwill to CGUs;
  • Other disclosure requirements.

The proposed changes to IAS 36 would affect any entity that has cash-generating units containing goodwill.

Next Steps

The IASB will consider comment letters received during the consultation period and other feedback on the proposals in the ED and will then decide whether to issue the proposed amendments.

Outreach

Our outreach on the IASB’s Discussion Paper Business Combinations – Disclosures, Goodwill and Impairment project included roundtables with users and preparers, and public consultation on our Draft Comment Letter - Business Combinations—Disclosures, Goodwill and Impairment published on 15 December 2020. Following a public consultation period on the Draft Comment Letter, the Final Comment Letter was published on 29 January 2021. The comment letters received from stakeholders are also published below.

Our outreach on the IASB’s Exposure Draft: IASB/ED/2024/1 Business Combinations—Disclosures, Goodwill and Impairment project included a roundtable with users and preparers, one-to-one interviews with preparers and consulting with our UKEB Advisory Groups. In addition, our Draft Comment Letter - Business Combinations—Disclosures, Goodwill and Impairment was published for public consultation on 31 May 2024. Following a public consultation period on the Draft Comment Letter, the Final Comment Letter was published on 22 July 2024. The comment letters received from stakeholders are also published below.

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