ASCG comment letter on the ED/2024/1 1 Business Combinations – Disclosures, Goodwill and Impairment (BCDGI)

The ASCG today submitted its comment letter on the IASB’s ED/2024/1 Business Combinations – Disclosures, Goodwill and Impairment.

In our comment letter we appreciate the IASB’s efforts to improve the information companies provide to investors, at a reasonable cost, about the acquisitions those companies make and to help investors better assess management’s decision to make an acquisition and the performance of that acquisition.

However, we observe that the initial objective of the IASB’s project has hardly been addressed. We think that a fundamental reconsideration of goodwill accounting would have been preferable to address the long-standing issues and express that the reintroduction of goodwill amortisation would have constituted a more promising alternative to pursue.

In particular, we agree with the proposals regarding ‘Disclosures: Exemption from disclosing information’ (Question 3) and ‘Changes to the impairment test: Value in use’ (Question 7).  We do not support the proposals on ‘Changes to the impairment test’ (Question 6) to reduce shielding and management over-optimism, as we do not consider them as suitable for addressing this initial objective of the IASB’s project.

After deliberating the proposals, we are not yet convinced about the specifics of ‘Disclosures: Performance of a business combination’ (Question 1) and ‘information on expected synergies’ (Question 5), as we think that these proposed disclosures are commercially sensitive and could lead to a competitive disadvantage for IFRS preparers. Regarding ‘Disclosures: Identifying information to be disclosed’ (Question 4), we consider the appropriate definition of a strategic business combination as significantly more important than the determination of the monitoring level, so that only business combinations that the management of the company itself considers to be strategic are covered by the additional reporting requirements.

The views of the participants in the joint outreach event, held on 28 June 2024 with the involvement of the IASB and EFRAG, were incorporated into the discussions at the ASCG.