Proposals to improve the accounting and reporting on business combinations

Proposals to improve the accounting and reporting on business combinations

The International Accounting Standards Board (IASB) published a Discussion Paper on two potential areas where the accounting and reporting related to business combinations could be improved. These are as follows:

(a). Improving the disclosures on acquisitions to provide investors with information to help them assess whether those          acquisitions were successful.
The IASB is proposing that entities provide disclosure on the objectives of their acquisitions, and then  subsequently report on whether those objectives are achieved.

(b).Considering the accounting for goodwill arising from acquisitions.

Goodwill on business combinations is currently subject to an impairment test. This has been the subject of much debate over the years. Many practitioners have argued that this test is costly, complex and provides information too late to investors. Strong views have been raised about reintroducing the amortisation of impairment. The IASB has concluded that it should retain the impairment approach as it there is no clear evidence suggesting that amortising goodwill provides better information to investors.

The IASB’s on Business Combinations—Disclosures, Goodwill and Impairment contains further proposals in addition to those outlined above, including proposals to reduce the cost of the impairment test for preparers. The Discussion Paper can be accessed here link. Comment is due by 31 December 2020.

The views expressed in this article are those of Secretariat and not the ASB Board.