This Exposure Draft Business Combinations — Disclosures, Goodwill and Impairment (the ED) follows on from the IASB’s Discussion Paper (DP) in March 2020. While we support the concepts of limiting some of the disclosures to only a subset of material business combinations, and an exemption in specific circumstances, the concerns that CA ANZ and CPA Australia raised in a joint submission to the DP, along with many other submitters, remain largely unaddressed in the ED.

We do not believe the ED has struck the right balance in improving the information companies provide to investors about acquisitions while considering the costs and risks to companies making these proposed disclosures. Therefore, our joint CA ANZ / CPA Australia submission does not support the business combination disclosures in IFRS 3 Business Combinations as currently proposed in the ED. This is on the basis that they do not justify the implementation costs, come with several practical challenges, including commercial sensitivity and auditability, and may create an expectation gap.

The IASB concluded that developing a different impairment test would not be feasible. Instead, it has proposed changes to the current impairment test in IAS 36 Impairment of Assets. We do not believe the proposals will have much impact on the problem areas that have been identified, shielding and management over-optimism. We reiterate that a fundamental review of IAS 36 is needed to address stakeholder concerns and the current model’s complexity, especially for smaller listed companies.

The IASB concluded there was no compelling case to justify reintroducing goodwill amortisation. However, feedback from members indicates there is still support for an amortisation model as a pragmatic, cost-effective solution to address the practical challenges associated with impairment. Therefore, we again put forward our recommendation to explore a hybrid approach whereby an entity would carry out an annual impairment test of goodwill in the first few years after an acquisition, followed by amortisation of goodwill in later years.