Chartered Accountants ANZ welcome the International Accounting Standards Board (IASB) efforts to address matters in relation to disclosures of business combinations, accounting for goodwill and related impairment considerations. Our response to this discussion paper has two key elements below.
Improving disclosures about acquisitions
Generally, we support the overall objectives of the disclosure proposals that have been developed to provide useful information around business combinations and their subsequent performance. However, to achieve the intended purpose of these disclosures, our stakeholders have identified the practical challenges for consideration by the IASB.
Goodwill impairment and amortisation
Globally, corporate regulators and the audit profession repeatedly identify shortcomings in the accounting for impairment (including impairment of goodwill) within financial statements, signalling a need for improvement. Many proponents favour amortisation of goodwill (including some IASB members) as a practical solution to address some of the shortcomings associated with the current impairment approach.
The CA ANZ and University of Melbourne research indicates that there is potentially a systemic delay occurring in the recognition of impairment charges, at least in smaller listed companies worldwide. We appreciate the focus of the IASB is to develop financial reporting standards that satisfy the information needs of investors, but both regulators and the audit profession play an important role in ensuring that the quality of information included in financial statements is of the highest standard.
The CA ANZ member survey indicates that users of financial statements believe an impairment testing model can provide more useful information than amortisation. However, the complexity of the current approach to impairment testing may have a bearing on reporting quality when it comes to practically applying the model, particularly for smaller listed companies. Therefore, it is important to consider to what extent those benefits are actually being achieved.
The IASB is proposing to simplify the current impairment model by introducing an indicator-based impairment model. We believe this could exacerbate the shortcomings discussed above and would not resolve the primary concern raised by stakeholders.