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EFRAG Research Project Goodwill - Impairment and Amortisation



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.


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