IAS 36 Impairment of Assets: Goodwill and Impairment

This month we’re looking what the IASB (International Accounting Standards Board) has been doing about improving the application of IAS 36 Impairment of Assets and specifically dealing with Goodwill and Impairment.

The Board is looking at making the application of IAS 36 easier by using the unrecognized excess of the recoverable amount over the carrying amount of a cash‑generating unit (or groups of units) as an additional factor in the impairment testing of goodwill.

The IASB is thinking about bringing in the following disclosure requirements:

  • Each year, information about the excess in a cash-generating unit (or groups of units) to which goodwill is assigned for impairment testing
  • A breakdown of goodwill by past business combination, explaining why the carrying amount of goodwill is recoverable
  • The reasons for paying a premium that exceeds the value of the net identifiable assets acquired in a business combination
  • Key assumptions or targets supporting the purchase consideration
  • A comparison of actual performance with those assumptions or targets

On the other hand, the Board dropped previously considered approaches:

  • Not requiring mandatory annual quantitative impairment testing of goodwill
  • Letting goodwill to be tested for impairment at the company level or at the level of reportable segments
  • Disclosure of the payback period of an investment in a business combination
  • Changing the current requirement of using higher of value in use and fair value less costs of disposal to using a single method as the only basis for calculating the recoverable amount of an asset (or a cash‑generating unit)

The IASB concluded that the following possible approaches are outside the scope of the goodwill and impairment research project:

  • Disclosure of a measure of total assets and liabilities for each reportable segment
  • Disclosure requirements in IFRS 3 Business Combinations

The Board said it will not consider reintroducing amortization of goodwill.

So, what items does the IASB have in its sights for the near future? It tells us that it will look at:

  • Whether the output of the project should be a discussion paper or an exposure draft
  • Including some intangible assets within goodwill in a business combination
  • How to simplify the calculation of value in use by removing the explicit requirement to use pre‑tax inputs
  • Start to allow estimated cash flows from uncommitted future restructuring and from improving or enhancing an asset’s performance

Stay tuned for next month’s update.

Mike Morley

A Certified Public Accountant, business author of several books (including IFRS Simplified”) Mike Morley is an entertaining and informative speaker, a recognized authority in the field of finance, and offers various training programs, such as IFRS, SOX, and Financial Statement Analysis that focus on providing continuing education opportunities for finance and accounting professionals.

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