Business combinations - Disclosures, Goodwill and Impairment
About the project
Goodwill is an asset recognised on an acquirer’s balance sheet in a business combination when the consideration paid for an acquiree exceeds the fair value of the acquiree’s identifiable net assets. It is measured as a residual (the excess of the amount paid over the fair value of the identifiable net assets), and represents the future economic benefits arising from other assets acquired that are not individually identified and separately recognised. Goodwill is subsequently measured at historical cost and written down under the requirements of HKAS 36 Impairment of Assets in the event of impairment.
Following its Post-implementation Review of IFRS 3 Business Combinations, the International Accounting Standards Board (IASB) began a research project on goodwill and impairment with the objective to explore whether entities can provide users of the financial statements with more useful information regarding acquisitions at a reasonable cost. The objectives of the research project were to consider:
- improving disclosures to allow investors to assess whether a business combination is a good investment decision and whether, post-acquisition, the business is performing as expected at the time of acquisition;
- simplifying the accounting for goodwill; and
- improving the calculation of value in use in the impairment test.
The IASB published its preliminary views in a Discussion Paper Business Combinations – Disclosures, Goodwill and Impairment (DP) in March 2020 to seek public comments. The Hong Kong Institute of Certified Public Accountants (Institute) responded to that Discussion Paper in December 2020. The submission, together with comment letters received and minutes for our outreach activities can be found at the Institute’s website.
The Institute has an active goodwill and impairment project, and has carried out various activities to drive local and global discussions on the accounting for goodwill, including:
- Working closely with other national standard-setters, including with the staff of the Accounting Standards Board of Japan (ASBJ) on a joint Research Paper Goodwill: Improvements to Subsequent Accounting and an Update of the Quantitative Study (details below).
- Issuing an Invitation to Comment on the IASB DP Business Combinations – Disclosures, Goodwill and Impairment, with comments due to be received by 7 August 2020.
- Conducting various other forms of outreach to solicit views from stakeholders, including a forum with local investors and analysts and discussion at the International Forum of Accounting Standard Setters meeting in October 2019.
Research Paper
Staff of the Institute published a joint Research Paper with the staff of the ASBJ on 24 March 2020 with the objective to:
- Share new findings from an updated quantitative study on goodwill.
- Analyse the existing accounting requirements for goodwill.
- Explore alternative views on the subsequent accounting for goodwill.
Please refer to Research Paper Goodwill: Improvements to Subsequent Accounting and an Update of the Quantitative Study for details.
The Institute presented its Research Paper to IASB members and national standard setters during Accounting Standards Advisory Forum (ASAF) meeting on 2 April 2020.
Recent development
IASB Board Meeting
The IASB staff provided the IASB with a high-level summary of the feedback on the DP at the March 2021 IASB meeting and continued redeliberating the feedback at its subsequent meetings.
In September 2022, the IASB voted to add disclosure requirements to IFRS 3 on information about the subsequent performance of an acquisition, in response to investors' feedback on the PIR. In designing these disclosure requirements, the IASB also responded to feedback from companies about the challenges of providing this information.
At its November 2022 meeting, the IASB voted to retain the impairment-only approach to account for goodwill. In making its decision, the IASB considered stakeholder feedback from the PIR of IFRS 3, the DP and subsequent research. The IASB concluded that extensive evidence collected did not demonstrate a compelling case to change its previous decision about accounting for goodwill.
IASB Exposure Draft Business Combinations—Disclosures, Goodwill and Impairment
In March 2024, the IASB published the Exposure Draft Business Combinations—Disclosures, Goodwill and Impairment (ED) for public consultation.
The ED sets out a package of proposals that in the IASB’s view would result in companies providing better information—at a reasonable cost—about acquisitions, thereby responding to stakeholder concerns.
The ED contains proposed changes to:
- IFRS 3 Business Combinations, particularly introducing new disclosure requirements of information about the performance of business combinations and quantitative information about the synergies expected to arise from a business combination.
- IAS 36 Impairment of Assets, focusing on the calculation of value in use, the allocation of goodwill to cash-generating units and the disclosure requirements.
The Institute’s comment letter in response to the ED was submitted in July 2024. The submission and the comment letters received can be found at the Institute’s website. Details of the IASB’s development on this project can be found in IASB Goodwill and Impairment project page.
Other useful resources
Articles published by Standard Setters
IASB
The Institute’s Standard Setting Department
Last updated: 16 August 2024
