EFRAG Research Project Goodwill - Impairment and Amortisation
- Project status: Active
- Current project stage: Completed
- Project responsible: Archive - Filippo Poli, Filipe Alves
Description
Introduction
Under IFRS, goodwill arising from a business combination is not amortised but is to be tested for impairment at least annually in accordance with the IAS 36 Impairment of Assets . Prior to the issuance of IFRS 3 Business Combinations in 2004, IFRS required amortisation of goodwill on a systematic basis over the best estimate of its useful life, with a rebuttable presumption that the useful life would not exceed twenty years from initial recognition. There has been a long debate about the strengths and weaknesses of an impairment-only model. In the context of the Post-Implementation Review of IFRS 3, mixed views have been expressed, with some constituents supporting the current model and others supporting the reintroduction of annual amortisation.
What is the objective of the project?
The objective of the project is to discuss possible amendments to the subsequent accounting for goodwill.
The project does not address the initial recognition and measurement of goodwill.
Research Team Discussion Paper on accounting treatment of goodwill
After the completion of the 2012 public consultation (see results below), the OIC and EFRAG created a Research Group together with the Accounting Standards Board of Japan (ASBJ) that had conducted a similar survey.
Based on the findings, the Research Group explored possible approaches to remedy the concerns raised by respondents. EFRAG, OIC and the ASBJ decided to publish this research outcome in a form of the Discussion Paper (DP) in July 2014. The views presented in the DP were those of the Research Group only.
In the DP, the Research Group explored possible approaches to remedy the shortcomings that constituents identified by considering one or a combination of the following: (a) changing the requirements for the subsequent accounting of goodwill, (b) improving the requirements for impairment testing and (c) improving the disclosure requirements in IAS 36. As a result of its analysis, the Research Group concluded that reintroduction of amortisation of goodwill would be appropriate. The DP is available here below.
In response to Discussion Paper, the Research Group received twenty nine comment letters and issued in February 2015 a feedback statement which describes the main comments that it received. The majority of respondents supported that amortisation of goodwill should be reintroduced, but also pointed out that there were areas for improvement in the impairment testing.
Phase II of the Research Project
Following the replies from constituents and the publication of the feedback statement, in January 2015 the EFRAG board agreed that work should be continued on the project. In particular, the project would focus on the identification of specific improvements to the goodwill impairment test and on the discussion on how to apply annual amortisation to the goodwill.
At this stage, EFRAG has not yet taken position in favour or against the reintroduction of annual amortisation.
Quantitative study on goodwill and goodwill impairment
On 29 September 2016, EFRAG published a quantitative study. The objective of the study is to facilitate the debate related to the accounting for goodwill by providing evidence on how goodwill and goodwill impairment have evolved over time. In this study, EFRAG presents a quantitative analysis of a sample of European companies from 2005 to 2014 and compares the European data to other samples of US, Australian and Japanese companies.
Due to the nature of the study, EFRAG has not included specific questions to constituents. However, EFRAG invited constituents to provide their comments by 31 December 2016.
Part of the study was carried out in collaboration with the Accounting Standards Board of Japan (ASBJ). The ASBJ's Research Paper No. 2, Quantitative Study on Goodwill and Impairment can be found here .
Discussion Paper Goodwill Impairment: Can it be improved?
On 29 June 2017, EFRAG published a Discussion Paper Goodwill Impairment: Can it be improved?. This publication illustrated a number of potential amendments to the goodwill impairment test with the view to enhancing its application and effectiveness and reducing complexity.
The scope of the publication was limited to impairment testing and it did not seek to address broader topics such as identification and measurement of acquired intangible assets in a business combination or the extent to which these should be separated from or subsumed into goodwill.
The publication completed EFRAG's current research activities on goodwill. EFRAG will utilise the feedback received when responding to any future consultations arising from the IASB's Goodwill and Impairment research project.
Feedback Statement
On 14 March 2018, EFRAG issued a feedback statement which summarises the comments received in response to its Discussion Paper Goodwill Impairment: Can it be improved?.
EFRAG received twenty-two comment letters, which are available here . Many constituents expressed the view that the goodwill impairment test can be improved in certain areas. However, many constituents called for a rigorous cost-benefit analysis on any future changes.
More generally, many constituents appreciated EFRAG's efforts to stimulate the debate on potential improvements to the goodwill impairment test. In particular, some respondents welcomed EFRAG's initiative to engage with European constituents during the early phases of the IASB's research work.
With regard to EFRAG's specific suggestions, respondents generally agreed with the inclusion of future restructurings in the calculation of value in use and allowing the use of a post-tax discount rate. They explained that both suggestions would reduce complexity and application costs of current requirements.
There was also some support for the introduction of a qualitative assessment on the likelihood of an impairment (a so-called 'Step Zero'). However, some respondents were concerned that this could affect the timeliness of goodwill impairments.
Finally, there was less support for the remaining suggestions such as providing additional guidance on the allocation of goodwill to a cash-generating unit, eliminating one of the two possible methods for determining the recoverable amount or introducing the accretion approach to target internally generated goodwill. Respondents considered that these ideas may increase complexity and costs to some extent, without clearly enhancing the effectiveness of the impairment test.
- Research phase 29/06/2017 - Proactive paper Goodwill Impairment Test Can it be improved.pdf
- Consultation 20/12/2017 - Comment Letter Received CL 201 - Accountancy Europe - EFRAG DP Goodwill Impairment Test 2017.pdf 21/12/2017 - Comment Letter Received CL 202 - KBC - EFRAG DP Goodwill Impairment Test 2017.pdf 22/12/2017 - Comment Letter Received CL 203 - BNP Paribas - EFRAG DP Goodwill Impairment Test 2017.pdf 03/01/2018 - Comment Letter Received CL 204 - CRUF - EFRAG DP Goodwill Impairment Test 2017.pdf 27/12/2017 - Comment Letter Received CL 205 - ACTEO - EFRAG DP Goodwill Impairment Test 2017.pdf 29/12/2017 - Comment Letter Received CL 206 - AFRAC - EFRAG DP Goodwill Impairment Test 2017.pdf 29/12/2017 - Comment Letter Received CL 207 - OIC - EFRAG DP Goodwill Impairment Test 2017.pdf 29/12/2017 - Comment Letter Received CL 208 - CNC - EFRAG DP Goodwill Impairment Test 2017.pdf 02/01/2018 - Comment Letter Received CL 209 - Muhammad Hadidjaja - EFRAG DP Goodwill Impairment Test 2017.pdf 02/01/2018 - Comment Letter Received CL 210 - ASCG - EFRAG DP Goodwill Impairment Test 2017.pdf 02/01/2018 - Comment Letter Received CL 211 - Insurance Europe - EFRAG DP Goodwill Impairment Test 2017.pdf 02/01/2018 - Comment Letter Received CL 212 - GDV - EFRAG DP Goodwill Impairment Test 2017.pdf 02/01/2018 - Comment Letter Received CL 213 - SEAG - EFRAG DP Goodwill Impairment Test 2017.pdf 04/01/2018 - Comment Letter Received CL 214 - DASB - EFRAG DP Goodwill Impairment Test.pdf 09/01/2018 - Comment Letter Received CL 215 - PwC - EFRAG DP Goodwill Impairment Test 2017.pdf 12/01/2018 - Comment Letter Received CL 216 - Business Europe - EFRAG DP Goodwill Impairment Test 2017.pdf 15/01/2018 - Comment Letter Received CL 217 - EFFAS- EFRAG DP Goodwill Impairment Test 2017.pdf 17/01/2018 - Comment Letter Received CL 218 - ANC - EFRAG DP Goodwill Impairment Test 2017.pdf 18/01/2018 - Comment Letter Received CL 219 - ICAC - EFRAG DP Goodwill Impairment Test 2017.pdf 01/02/2018 - Comment Letter Received CL 220 - DP - EFRAG DP Goodwill Impairment Test 2017.pdf 07/02/2018 - Comment Letter Received CL 221 - Mazars - EFRAG DP Goodwill Impairment Test 2017.pdf 13/02/2018 - Comment Letter Received CL 222 - SFAF - EFRAG DP Goodwill Impairment Test 2017.pdf 22/09/2014 - Comment Letter Received CL01 - GDV.pdf 02/10/2014 - Comment Letter Received CL02 - Deutsche Telekom.pdf 02/10/2014 - Comment Letter Received CL03 - CFA UK.pdf 02/10/2014 - Comment Letter Received CL04 - FEE.pdf 02/10/2014 - Comment Letter Received CL05 - UniCredit.pdf 02/10/2014 - Comment Letter Received CL06 - Swedish Financial Reporting Board.pdf 02/10/2014 - Comment Letter Received CL07 - ICAC.pdf 02/10/2014 - Comment Letter Received CL08 - DASB.pdf 02/10/2014 - Comment Letter Received CL09 - Swedish Enterprise Accounting Group.pdf 02/10/2014 - Comment Letter Received CL10 - Federation Bancaire Francaise.pdf 07/10/2014 - Comment Letter Received CL11 - The 100 Group.pdf 02/10/2014 - Comment Letter Received CL12 - Deloitte.pdf 02/10/2014 - Comment Letter Received CL13 - Societe Generale.pdf 02/10/2014 - Comment Letter Received CL14 - ICAEW.pdf 16/11/2014 - Comment Letter Received CL15 - ENEL.pdf 16/11/2014 - Comment Letter Received CL16 - Astaldi.pdf 16/11/2014 - Comment Letter Received CL17 - Intesa San Paolo.pdf 29/11/2014 - Comment Letter Received CL18 - ICAP.pdf 29/11/2014 - Comment Letter Received CL19 - Japanese Business Federation - translation from Japanese original.pdf 29/11/2014 - Comment Letter Received CL20 - JICPA - translation from Japanese original.pdf 16/11/2014 - Comment Letter Received CL21 - CRUF.pdf 29/11/2014 - Comment Letter Received CL22 - SFAF.pdf 29/11/2014 - Comment Letter Received CL23 - Insurance Europe.pdf 29/11/2014 - Comment Letter Received CL24 - Acteo.pdf 29/11/2014 - Comment Letter Received CL25 - AFRAC.pdf 02/12/2014 - Comment Letter Received CL26 - Business Europe.pdf 15/12/2014 - Comment Letter Received CL27 - AIAF - translation from Italian original.pdf 15/12/2014 - Comment Letter Received CL28 - SAAJ - translation from the Japanese original.pdf 15/12/2014 - Comment Letter Received CL29 - ANC.pdf 05/10/2014 - Proactive paper DP Should Goodwill still not be amortised - Research Group paper.pdf 16/01/2017 - Proactive paper EFRAG Quantitative Study Goodwill - September 2016.pdf 03/02/2015 - Feedback statement – comment letters received Feedback Statement - Discussion Paper on Accounting and Disclosure for Goodwill.pdf
Project news
14/03/2018 - feedback statement on efrag's goodwill impairment paper.
In June 2017 EFRAG issued the Discussion Paper Goodwill impairment test: can it be improved? which included suggestions to improve the goodwill impairment test. EFRAG is now issuing a feedback statement which summarises the response received from constituents. The feedback will be used by EFRAG in developing its response to any future IASB proposals arising from its Goodwill and Impairment research project.
12/12/2017 - REMINDER: Please provide input to EFRAG's consultation on goodwill impairment testing
The IASB expects to publish its proposals on the impairment test for goodwill in 2018. EFRAG’s Discussion Paper Goodwill impairment test: can it be improved? illustrates a number of suggestions to enhance the application and effectiveness and to reduce the complexity of the goodwill impairment test. EFRAG asks European constituents' views on these suggestions by 31 December 2017.
29/06/2017 - New EFRAG discussion paper tackles goodwill impairment testing
EFRAG’s Discussion Paper Goodwill impairment test: can it be improved? is the latest in a series of EFRAG research publications on goodwill accounting - a complex and controversial topic. This publication illustrates a number of potential amendments to the goodwill impairment test with the view to enhancing its application and effectiveness and reducing complexity.
29/09/2016 - What do we really know about goodwill and impairment? – A quantitative study
EFRAG publishes a quantitative study on Goodwill and Goodwill Impairment
03/02/2015 - EFRAG, the OIC and the ASBJ have published a feedback statement that summarises the responses received on the Discussion Paper "Should Goodwill Still Not Be Amortised? - Accounting and Disclosure for Goodwill
EFRAG, the Italian Standard Setter (OIC) and Accounting Standard Board of Japan (ASBJ) jointly published a feedback statement summarising comments received on the Discussion Paper " Should Goodwill Still Not Be Amortised ? - Accounting and Disclosure for Goodwill.
Related projects
- Business Combinations—Disclosures, Goodwill and Impairment
- Goodwill impairment and amortisation - Questionnaire
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Business Combinations Disclosures, Goodwill and Impairment
Timeline .
The IASB published its Discussion Paper Business Combinations – Disclosures, Goodwill and Impairment in March 2020. The IASB’s comment deadline was 31 December 2020
The Discussion Paper follows the post-implementation review of IFRS 3 Business Combinations . The IASB’s project objectives are:
- to provide better information on acquisitions to investors
- to ensure timely recognition of impairments
- to make the impairment test less costly
Key IASB Proposals
- Maintain the impairment-only model and do not develop proposals to reintroduce amortisation
- Remove the requirement for an annual quantitative impairment test and require a quantitative test only when there is an indicator of impairment
- Reduce the cost and complexity of the impairment calculation through targeted simplifications
- Disclose management’s strategic rationale, objectives, metrics and expected synergies for acquisitions
- Present total equity excluding goodwill on the balance sheet, to highlight the unique nature of goodwill
Outreach activity on this project included roundtables with users and preparers, and the opportunity to comment on our draft comment letter
IMAGES
VIDEO
COMMENTS
A “discussion paper” is a quantitative depiction of a specified topic, including but not limited to, a summary of applicable objections and appropriate conclusions drawn from the project.
A discussion paper presents and discusses in depth the issues that surround a specific topic. When writing a discussion paper, you must include thorough discussion of both sides of the topic being debated, reliable research and evidence reg...
A research paper should contain the title, the abstract, methods and results, in addition to a discussion section, literature review and citation of sources. The basic characteristics of a research paper are the same regardless of academic ...
The International Accounting Standards Board (Board) has published a Discussion Paper on possible improvements to the information companies report about
(ii) permitting the use of post-tax cash flows and post-tax discount rates; and. Page 3. Agenda ref. 18A. Goodwill and Impairment │ Overview of the feedback on
... Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment. The IASB discussed moving the project to the standard-setting work plan. It
contribute to EFRAG's due process regarding the IASB's Discussion Paper (DP) Business. Combination: Disclosure, Goodwill and Impairment. We
EFRAG asks constituents to provide their views on the EFRAG draft comment letter in response to the IASB's Discussion Paper DP/2020/1 Business Combinations —
The International Accounting Standards Board (IASB) has published a comprehensive discussion paper DP/2020/1 'Business Combinations
EFRAG's Discussion Paper Goodwill impairment test: can it be improved? is the latest in a series of EFRAG research publications on goodwill accounting - a
The Discussion Paper follows the post-implementation review of IFRS 3 Business Combinations. The IASB's project objectives are: to provide better information on
impairment test because goodwill has to be tested for impairment together with.
The International Accounting Standards Board (IASB) published the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment which sets out
We appreciate the opportunity to comment on the International Accounting Standards. Board's ('the Board') Discussion Paper DP/2020/1 Business