ASCG publishes Comment Letter on IASB DP/2020/1 Business Combinations – Disclosures, Goodwill and Impairment

In our Comment Letter we welcome the opportunity to comment on the DP proposals and appreciate the IASB´s effort to improve and to simplify the impairment test as well as to provide users with more useful information about acquisitions.

Regarding the proposed disclosures, we think that they are capable of providing more useful information to investors and, therefore, of increasing the information value of the financial statements. However, we think that it could be difficult to solve the issue of confidentiality and sensitivity of the information, as we recognise that there may be an area of conflict for information that is of interest to the user but is classified as confidential by the company. Therefore, we suggest developing overarching, principle-based disclosure objectives in conjunction with (limited) disclosure requirements for core information.

Our main criticism, though, relates to our observation that the initial core problem of the IASB´s research project, i.e. ensuring a robust impairment test and timely impairments of goodwill in response to the ongoing criticism of too little, too late has hardly been addressed and not been solved; it therefore continues to exist.

We concede that most technical arguments for or against amortisation or the impairment-only approach have been on the table for long and have already been exchanged numerous times. However, our re-evaluation of the arguments already known and our observations that the terminal value is the main factor when determining whether there is the need for an impairment as well as that the current impairment model does not meet the expectations of users and other stakeholders with regard to recognising impairments on a timely basis, leads us to a different assessment than when the impairment-only approach was introduced.

In our opinion, the impairment-only approach merely represents an accounting convention that may be superior conceptually, yet is only but one reasonable alternative and one that leads to the well-known accounting problems due to the lived practice in performing an impairment test. Therefore, we are convinced that the problems could be better solved by reintroducing an amortisation model.