SOCPA Shares Remarks on IASB's Paper on Business Combination (Goodwill, and Impairment)
In implementation of its policy to support active engagement with IASB following the transition to international standards, SOCPA represented by its Accounting Standards Committee shared its remarks on IASB's paper on business combinations, discussing the possibility of introducing additional disclosure requirements to provide information to users on the performance of acquired entities so as to hold management accountable for those acquisitions.
IASB explored how to account for goodwill, and whether to reintroduce amortization of goodwill alongside impairment requirements.
SOCPA asserted its approval on most of content of the paper. SOCPA added that, contrary to the IASB’s viewpoint of the International Council, it is appropriate to require for forward-looking disclosures, especially with regard to expectations about industry conditions such as the level of competition, technical development, the regulatory environment and the extent of impact on the future performance of targets of the acquisition.
SOCPA considered that IASB’s proposed disclosures are primarily directed to acquisitions that are not fully integrated into the acquired entity, and accordingly it is suggested that additional disclosures include both acquired entities whose business is fully integrated and those whose business is not integrated into the acquired facility.
Moreover, SOCPA has expressed its support for reintroduction impairment requirements on goodwill in addition to maintaining the requirements for impairment, as the application of the impairment model only, which has been applied since 2004, has proven its failure to prove impairment in the appropriate manner. The challenge posed by amortizing goodwill can be overcome by linking it to the special nature of each cash-generating unit to which the goodwill is allocated.
As the paper aims to find an appropriate amendment to the ISFR 3, SOCPA suggested redrafting the definition of goodwill in a manner that reflects the intended component of that asset, especially the future benefits arising from the going concern value of the acquiree or from the synergies of the acquiree's and acquirer's assets.
Committees remarks can be found by clicking here.