IIF response to IASB ED on Business Combinations

On July 15, the IIF submitted industry perspectives in response to the International Accounting Standards Board (IASB) Exposure Draft (ED) on Business Combinations – Disclosures, Goodwill and Impairment – Proposed amendments to IFRS 3 and IAS 36, which aims to provide better information for users of financial statements to assess business combinations and to address the complexity of impairment tests (IAS 36).

In the letter the IIF supported the objective behind the Board’s proposals, and said we appreciate their efforts to improve the goodwill impairment testing process by permitting the inclusion of cash flows from future restructurings and the use of after-tax discount rates, which will reduce the cost and complexity of preparing the key assumptions for the value-in-use calculation. We also provided the IASB with feedback and recommendations regarding the additional disclosure requirements proposed in the ED. We believe that the IFRS 3 disclosure requirements proposed in the ED would be better placed in the management report / commentary rather than being required in the notes of the financial statements as the disclosures are future oriented.

In the letter, we also strongly recommend the Board to reconsider its proposal to require disclosure on the key objectives and targets of strategic business combinations and on the expected synergies. We are concerned about the usefulness and quality of this information as auditability would be limited to confirming if the disclosures are aligned with the information management is reviewing internally. The disclosures would also involve a high level of discretion and judgement by preparers and may not achieve the objective of the amendments. In addition, disclosing these items may reveal confidential strategic information which is commercially sensitive (such as internal strategies) and may not be practical to estimate in the context of financial reporting.