Redeliberations continue on Goodwill and Impairment project

Keywords: Mazars, Thailand, IFRS, IASB,IFRS 3, Goodwill, Impairment

15 November 2022

The IASB tentatively decided to propose adding two new disclosure objectives to IFRS 3 – Business Combinations. Thus, an entity should present disclosures that will help users of financial statements to understand:

• the benefits that an entity expects from a business combination at the point when it reaches an agreement on the acquisition price; and
• the extent to which an entity’s objectives for a business combination are being met.

The IASB has tentatively decided to require entities to disclose the “strategic rationale for undertaking the business combination” instead of the “‘primary reasons for the business combination” (IFRS 3.B64d) and to disclose, in the year of the business combination, quantitative information about the expected synergies.

Moreover, for “strategically important” business combinations, the IASB is planning to require disclosures on:

• management’s objectives for the business combination;
• the indicators and targets management will use to assess whether these objectives are being met; and
• for subsequent periods, the extent to which management’s objectives are being met, using these indicators, for as long as management is monitoring whether the objectives are being met.

A “strategically important” business combination is to be defined as one for which failure to meet the objectives would seriously put at risk the entity achieving its overall business strategy. At present, the Board is proposing that any business combination that meets one of the following thresholds would be classified as “strategically important”:

• the operating profit (or revenue) of the acquired business exceeds 10% of the acquirer’s operating profit before the business combination;
• the assets of the acquired business (including goodwill) exceed more than 10% of the acquirer’s assets before the business combination;
• the business combination involves the entity breaking into a new geographical area of operations or a major new line of business.

In specific circumstances (yet to be determined), an entity would be exempt from presenting disclosures on:

• management’s objectives for the business combination (only required for “strategically important” business combinations);
• the indicators and targets management will use to assess whether these objectives are being met (only required for “strategically important” business combinations); and
• quantitative information on the expected synergies.

However, this exemption would only apply in situations where disclosing information would seriously prejudice any of the entity’s objectives for the business combination. Application guidance will be produced to help entities to identify such situations.

In contrast, no exemption will be permitted for:

• the strategic rationale for undertaking the business combination;
• the comparison between the actual performance in subsequent periods and the objectives originally set, based on the indicators used by management (only required for “strategically important” business combinations).

Finally, the IASB has tentatively decided to reject the proposal to specify indicators that all entities would be required to disclose information about, as well as the proposal to only require qualitative disclosures in the year of a business combination.

The next step will be for the Board to decide, by the end of the year, whether the current impairment-only model should be retained or whether it should consider reintroducing amortisation of goodwill.