IASB Discussion Paper DP/2020/1 Business Combinations—Disclosures, Goodwill and Impairment


The International Accounting Standards Board (IASB) published the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment which sets out its preliminary views on how companies can provide better information so that investors can hold companies to account for acquisitions of other companies. The preliminary views focus on disclosure of information and on accounting for goodwill.

Mergers and acquisitions, which are referred to as business combinations in IFRS Standards, play a central role in the global economy. IFRS 3 Business Combinations specifies how companies must account for these transactions, and the IASB’s research project on Goodwill and Impairment considers issues identified in the Post-implementation Review (PIR) of IFRS 3 as well as explores whether companies can, at a reasonable cost, provide investors with more useful information about the acquisitions those companies make.

Improving disclosures about acquisitions

IFRS Standards do not specifically require companies to disclose information about the subsequent performance of acquisitions. However, investors want information about acquisitions at the time of the transaction and about how well they perform afterwards.

The IASB’s preliminary view is that it should require a company to disclose information about its objectives for an acquisition and, in later periods, information about how that acquisition is performing against those objectives. Such information would help investors to hold that company’s management to account for its acquisition decisions.

Improving the accounting for goodwill

The IASB has also been exploring whether to change how a company is required to account for goodwill, an asset that a company reports on its balance sheet when it acquires a business. A company is required to test annually whether goodwill is impaired—whether its value has fallen—but stakeholders have mixed views about whether this test is effective. Some argue that the impairment test informs investors about an acquisition’s performance. But others say that the test is costly and complex, and that impairment losses on goodwill are often reported too late to be useful to investors.

The IASB has been exploring whether it can make the impairment test more effective and less complex. The IASB’s preliminary view is that there is no alternative test that can target goodwill better and at a reasonable cost. The IASB is suggesting ways to make the impairment test less complex.

The IASB also considered whether to reintroduce amortisation of goodwill—the gradual write-down of goodwill over time, which was the requirement in IFRS Standards until 2004. However, the IASB’s preliminary view is that it should retain the existing approach, which relies only on an impairment test of businesses containing goodwill and does not amortise goodwill.

Other topics

Other preliminary views by the IASB include that companies should be required to present on their balance sheets the amount of total equity excluding goodwill, and that the range of intangible assets recognised in a business combination as required by IFRS 3 and IAS 38 Intangible Assets should be retained.

The IASB will consider comments received on the preliminary views to decide on whether and how to move forward with the project. If the IASB decides to amend IFRS Standards, it will publish an exposure draft containing proposals to implement any or all of its preliminary views. 

Click here to download the Discussion Paper and Snapshot.

Invitation to comment

The Discussion Paper is open for comment until 30 November 2020, a new deadline because of the covid-19 pandemic; previously it was 14 August 2020.

You may provide your comments via email to us at technical@masb.org.my

Click here to submit your comments.