The International Accounting Standards Board (IASB) is seeking views on potential changes to IFRS standards regarding business acquisitions, to make it easier for investors to assess the performance of any acquisitions
The proposals would require a company to disclose information about its objectives for an acquisition and, in subsequent periods, information about how that acquisition is performing against those objectives.
They require changes to IFRS 3 Business Combinations and IAS 36 Impairment of Assets.
As part of its work on this project, IASB has also considered whether to change how a company accounts for goodwill, in response to arguments that the current annual test for impairment is costly and complex, and that impairment losses on goodwill are often reported too late.
The board said it had tried to identify a better impairment test, which would require a company to report at an earlier date if its goodwill had lost value, but has concluded that there is no alternative that can target goodwill better and at reasonable cost.
It did consider reintroducing amortisation, which was the requirement in IFRS standards until 2004, but its preliminary conclusion is that it should retain the impairment-only approach, because there is no clear evidence that amortising goodwill would significantly improve the information that companies report to investors.
Hans Hoogervorst, IASB chair, said: ‘Investors want better information about how acquisitions are performing to help them hold a company’s management to account. Our suggested solution aims to meet investors’ needs without being too costly for companies.
‘We looked at the tricky issue of how to account for goodwill in the years after an acquisition. The board’s current view is that we should retain the impairment-only approach and not reintroduce amortisation, but we would welcome any new evidence to inform this important debate.’
Under the proposals outlined in the discussion paper, Business Combinations—Disclosures, Goodwill and Impairment, companies would be required to disclose the strategic rationale for an acquisition, the objectives for an acquisition and the metrics for monitoring the achievement of those objectives.
IASB is also considering asking a company to disclose the amount, or range, of synergies from an acquisition, the defined pension benefit liabilities and debt of the company acquired, together with details of revenue, cashflow and operating profit.
The discussion paper proposes simplifying the annual impairment test so it is no longer mandatory, and changes to the calculation of value in use.
The deadline for comments is 15 September.