Redeliberations continue on Goodwill and Impairment project

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

15 May 2023

• potential changes to IAS 36 – Impairment of Assets to reduce the cost and complexity of impairment testing of cash generating units (CGUs) containing goodwill; and 
• the potential removal of certain disclosure requirements from IFRS 3 – Business Combinations. 

Estimating the value in use 

The IASB reached the following tentative decisions on IAS 36: 

• to no longer prohibit entities, when they are estimating the value in use, from including cash flows that arise from: 
  • a future restructuring to which the entity is not yet committed; or 
  • improving or enhancing an asset’s performance; 

• to retain the requirement to assess assets or CGUs in their current condition; 
• not to add any additional constraints on the inclusion of cash flows beyond those already included in IAS 36. 

Still on the topic of estimating the value in use, the Board also tentatively decided: 

• to remove the requirement to use pre-tax cash flows and pre-tax discount rates; 
• to require entities to use internally consistent assumptions for cash flows and discount rates, regardless of whether the value in use is estimated on a pre-tax or post-tax basis; 
• to retain the requirement to disclose the discount rates used; 
• to remove the requirement to disclose a pre-tax discount rate; 
• to require entities to disclose whether a pre-tax or a post-tax discount rate was used in estimating value in use. 

Other suggestions to reduce the costs and complexity of impairment testing 

With a view to reducing the cost and complexity of IAS 36 impairment testing, the IASB tentatively decided: 

• not to add more guidance in IAS 36 about the difference between (a) the value in use and (b) the fair value less costs of disposal; 
• not to mandate a single method for measuring the recoverable amount; 
• not to provide additional guidance on performing the impairment test for entities in the financial services sector; and 
• not to provide additional guidance on the interaction between IAS 36 and either IFRS 13 – Fair Value Measurement or IAS 21 – The Effects of Changes in Foreign Exchange Rates. 

Deleting disclosure requirements on business combinations 

The IASB tentatively decided to remove some of the disclosure requirements on business combinations from IFRS 3, notably: 

• information about acquired receivables (IFRS 3 para. B64(h)); 
• the requirement to disclose adjustments resulting from the subsequent recognition of deferred tax assets in the reconciliation between opening and closing goodwill balances (IFRS 3 para. B67(d)(iii)); and 
• the requirement to disclose and explain any material gain or loss recognised in the current reporting period that relates to identifiable assets acquired or liabilities assumed in a business combination that was effected in the current or previous reporting period (IFRS 3 para. B67(e)). 

Following redeliberations, the IASB tentatively decided not to change the disclosure requirements relating to: 

• amount of goodwill deductible for tax purposes (IFRS 3 para. B64(k)); 
• costs relating to acquisitions (IFRS 3 para. B64(m)); 
• business combinations completed after the end of the reporting period (IFRS 3 para. B66); and
• business combinations in the interim financial statements (IAS 34 para. 16A(i)). 

Next steps 

In future meetings, the IASB will continue redeliberations with a view to: 

• reducing the costs and complexity of IAS 36 impairment testing; 
• improving the effectiveness of impairment testing of CGUs containing goodwill; and 
• clarifying the disclosure requirements on business combinations. 

Only once it has reached tentative decisions on all these topics will the Board consider whether to publish an exposure draft.