As we discussed here, in March 2024 the IASB published for comment the Exposure Draft Business Combinations—Disclosures, Goodwill and Impairment.

Let’s look at one last aspect of the reaction to the exposure draft. As we covered here, the exposure draft includes proposals for additional disclosure requirements addressing, for so-called “strategic” business combinations, objectives and related performance targets and whether these are met in subsequent years. But it also allows that an entity need not disclose a specified item of information “if doing so can be expected to prejudice seriously the achievement of any of the acquirer’s acquisition-date key objectives for the business combination.” It provides the following non-exhaustive list of relevant factors:

• the effect of disclosing the item of information—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 public availability of information—for example, if an entity has made information publicly available, it would be inappropriate to apply the exemption to that information. Examples of publicly available documents include press releases, investor presentations and regulatory filings made by the entity that are available to the public.

Here’s some reaction from South Africa’s Financial Reporting Standards Council:

• Members are generally not in favour of the inclusion of such an exemption. Members expressed concern that the exemption would be open to abuse, as the triggers for use would be subjective, in addition to its being difficult for an auditor to verify. Members stated that the objective of this project is to provide additional information to an investor as to the stewardship of management and the appropriate use and application of resources. Giving management an option to elect out of this disclosure would defeat the objective intended to be addressed by the Board….Members could not conceive that a scenario could exist in which management could elect to not provide the necessary information to a user. Should the exemption be used, it may prejudice investor decision-making.
• Members in the audit profession indicated use of this exemption could increase the risk and liability exposure for the auditors when such disclosures are not made and it prejudiced investor decision making.

Maybe it’s not too surprising if South African auditors are unusually neurotic. In contrast, Grant Thornton said:

• In our view, the proposed exemption by the IASB can, and should, be applied in the appropriate circumstances… We acknowledge the IASB considered the “disclose or explain” approach and also considered the disclosure of alternative information in situations where an entity does not want to provide all the required disclosures set. The ability to disclose some information about the business combination rather than none when commercially sensitive information is involved is sensible and we support what has been set out in the ED. The proposed application guidance has the potential to significantly help the application of the exemption to only appropriate circumstances. We would prefer this as it would reduce subjectivity and ensure its auditability.

BDO also concisely stated that they concurred with the proposal. But other audit firms gave a fussier response, such as KPMG:

• we believe it will be difficult for preparers to provide evidence justifying application of the exemption (and for auditors to evaluate this judgement). This could lead to disagreements between preparers and auditors, and disagreements between preparers and regulators. Therefore, we believe the proposed exemption and related application guidance needs to be further clarified to ensure it can be operationalized and restrict application to the appropriate circumstances.
• While the non-exhaustive list of factors is helpful in determining when the exemption is inappropriate, we believe it may still be difficult for preparers and auditors to assess whether a specific reason is sufficient and whether there is evidence to support the expected effect of disclosing the information.

KPMG was among those suggesting that some aspects of the basis for conclusions, such as its examples of when the exemption could be applied, should be included within the main body of the standard, which might seem like a rather tedious way of conveying that while they, the commenter, know to consult the full range of material relevant to applying a standard, the same can’t be expected of others. Sometimes, I think that an exemption should apply to almost any IFRS disclosure requirement, as long as the omission is prominently highlighted and explained; if a reader feels the missing material is relevant to their decision-making, they can then act accordingly. But that’s never going to be the case, maybe the IASB will just conclude that if some audit firms say they can live with what’s drafted, then the others will probably find a way to do the same…

The opinions expressed are solely those of the author.