29/05/2020 - EFRAG Draft Comment Letter on IASB DP 'Business Combinations — Disclosures, Goodwill and Impairment'

The DP proposes to require information about the strategic rationale and management’s objectives for an acquisition as at the acquisition date and subsequent disclosures about whether an acquisition is meeting those objectives. The DP also proposes information about synergies which EFRAG acknowledges would be useful. However, EFRAG notes some practical issues to consider in relation to such disclosures and is seeking constituents’ views on whether this information should rather be in the management commentary rather than the financial statements. EFRAG also questions whether the benefits of some of the disclosures would outweigh the costs.

The DP states that it is not possible to make the impairment test for cash-generating units containing goodwill significantly more effective. EFRAG suggests that the guidance on goodwill allocation to cash generating units is considered by the IASB and possibly amended to improve how the test is applied in practice. In addition, better disclosures of estimates used to measure recoverable amounts of cash-generating units containing goodwill could be considered. EFRAG seeks constituents’ views on possible disclosure proposals to mitigate the risk of management over-optimism.

The DP suggests that amortisation of goodwill should not be reintroduced. At this stage, EFRAG has not formed a view on this issue and is seeking inputs from its constituents on new evidences, new arguments or new assessment on the existing evidences to support a change.

EFRAG appreciates the IASB’s attempts to simplify the impairment test. However, EFRAG has reservations about introducing an indicator-only approach.

EFRAG supports the IASB's proposal to remove the restriction in IAS 36 Impairment of Assets that prohibits companies from including cash flows arising from a future uncommitted restructuring or from enhancing the asset’s performance as well as to remove the requirement to use pre-tax inputs and pre-tax discount rates to calculate value in use.

EFRAG does not assess that there would be any benefits of presenting the amount of total equity excluding goodwill in the statement of the financial position.

Finally, EFRAG would recommend that the issue on whether some intangible assets could be included in goodwill should be considered in a second phase of the project following a revision of IAS 38 Intangible Assets.