The IASB has published a package of proposals aimed at enhancing the information companies provide to investors about acquisitions.

Here’s some of what the press release had to say:

• Acquisitions continue to play a significant role in the global economy, with deals totalling US$3.2 trillion announced in 2023, according to data from Bain & Company. Investors need to understand the management decisions behind important acquisitions.
• The proposals in the Exposure Draft published today respond to stakeholder feedback that reporting on acquisitions poses difficulties for both investors and companies:
  • Investors lack sufficient and timely information about acquisitions and post-acquisition performance.
  • Companies seek to provide useful information to investors but see risks and costs in providing some information, particularly commercially sensitive information that could be used by competitors.
• Stakeholders have also expressed concern about the effectiveness and complexity of the impairment test for operations which have been allocated goodwill.
• The IASB is proposing amendments to IFRS 3 Business Combinations. The proposed amendments would require companies to report the objectives and related performance targets of their most important acquisitions, including whether these are met in subsequent years. Companies would also be required to provide information about the expected synergies for all material acquisitions. However, companies would not be required to disclose information that could compromise their acquisition objectives.
• The IASB also proposes related amendments to IAS 36 Impairment of Assets to make targeted improvements to the impairment test.

Regarding the exemption in the penultimate bullet, the exposure draft states: “an entity must be able to describe a specific reason for not disclosing an item of information that identifies the seriously prejudicial effect the entity expects to result from disclosing the information. A general risk of a potential weakening of competitiveness due to disclosing an item of information is not, on its own, sufficient reason to apply the exemption. An entity shall not use the exemption to avoid disclosing an item of information only because that item of information might be considered unfavourably by the capital market.”

The proposed amendments to IAS 36 include changes to the calculation of value in use “intended both to reduce the cost and complexity of the impairment test in IAS 36 and improve the information provided by the test, by bringing the calculation closer to the cash flow forecasts used by an entity’s management (including removing) the constraint on including future restructuring and asset enhancement cash flows (and) the requirement to use pre-tax cash flows and pre-tax discount rates.” They also include additional guidance on allocating goodwill to cash generating units, intended to more effectively ensure that the allocation of goodwill reflects an entity’s organizational structure and its internal reporting systems.

The exposure draft is just as notable for what it doesn’t propose. Among ideas floated in the IASB’s 2020 discussion paper were those of making more extensive changes to the IAS 36 tests; reintroducing amortization of goodwill; developing a proposal to require an entity to present on its statement of financial position the amount of total equity excluding goodwill; and changing the range of identifiable intangible assets recognized separately from goodwill in a business combination. As such, the final proposals may seem relatively modest and not that exciting, but such a judgment would undervalue the immense amount of work and consultation that underlies them. The 2020 discussion paper attracted almost 200 comment letters, many of them very detailed and articulate; as such the exposure draft may be almost as interesting as a representative illustration of modern-day standard-setting in all its intricacy as for its actual content and likely impact.

Partly inherent in that is a sense of relative futility, for example on that same amortization issue, the basis for conclusions observes:

• Feedback on the Discussion Paper provided evidence that stakeholders continue to hold strong and differing views about reintroducing amortization of goodwill. The IASB observed that the key reason for this divergence was a difference in stakeholders’ views of the nature of goodwill and whether it is predominantly a wasting asset or an asset with an indefinite life….The IASB acknowledged that stakeholders provided evidence to support their differing views about goodwill and gave reasons why the models for the subsequent accounting for goodwill could provide useful information. However, that evidence did not clearly demonstrate that one view was ‘more correct’ than the other…Many IASB members acknowledged the advantages and disadvantages of both models for the subsequent accounting for goodwill.

This feeds into the IASB’s decision to focus primarily on the quality of disclosure, while also seeming to tacitly concede that accounting in this area will never be free of controversy and second-guessing. Still, while the hearts of the IASB staff may sink at the prospect of receiving another massive influx of comment letters in response to the exposure draft, they’ll probably at least have the consolation of having heard it all before…

The opinions expressed are solely those of the author.