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The International Accounting Standards Board (IASB) is discussing feedback on the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment. In September 2021 the IASB decided to prioritise performing further work to:

  1. make tentative decisions on the package of disclosures about business combinations; and
  2. analyse specific aspects of the feedback on the subsequent accounting for goodwill.

The IASB will consider the project’s direction at a future meeting.

IASB® Update September 2022

The IASB met on 20 September 2022 to discuss some of the preliminary views related to disclosures about business combinations that were expressed in the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment.

Disclosure objectives

The IASB tentatively decided to propose adding two new disclosure objectives to IFRS 3 Business Combinations that would require an entity to disclose information to help users of financial statements understand:

  1. the benefits that an entity expected from a business combination when agreeing the price to acquire a business; and
  2. the extent to which an entity’s objectives for a business combination are being met.

All 11 IASB members agreed with this decision.

Information about business combinations

The IASB tentatively decided to propose:

  1. replacing the requirement for an entity to disclose the ‘primary reasons for the business combination’ in paragraph B64(d) of IFRS 3 with a requirement to disclose the ‘strategic rationale for undertaking the business combination’; and
  2. adding to IFRS 3 a requirement for an entity to disclose in the year of a business combination quantitative information about expected synergies.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to propose adding to IFRS 3 a requirement for an entity to disclose, for ‘strategically important’ business combinations, information about:

  1. management’s objectives for the business combination;
  2. the metrics and targets management will use to monitor whether those objectives are being met; and
  3. in subsequent periods, the extent to which management’s objectives are being met, using those metrics, for as long as management monitors the business combination against its objectives.

All 11 IASB members agreed with this decision.

‘Strategically important’ business combinations

The IASB tentatively decided that a ‘strategically important’ business combination would be a business combination for which not meeting the objectives would seriously put at risk the entity achieving its overall business strategy. To identify such business combinations, the IASB tentatively decided to propose using a closed list of thresholds—a business combination that meets any one of those thresholds would be ‘strategically important’. The thresholds would be:

  1. Quantitative—that is, a business combination in which:
    1. the acquiree’s operating profit (to be defined by the IASB’s Primary Financial Statements project) exceeds 10% of the acquirer’s operating profit, for the acquirer’s most recent annual reporting period ending before the business combination was completed;
    2. the acquiree’s revenue exceeds 10% of the acquirer’s revenue for the acquirer’s most recent annual reporting period ending before the business combination was completed; or
    3. the amounts recognised as of the acquisition date for all assets acquired (including goodwill) exceed 10% of the carrying value of the assets recognised on the acquirer’s balance sheet as at the acquirer’s most recent reporting period date before the business combination.
  2. Qualitative—that is a business combination that results in an entity entering a new geographical area of operations or a new major line of business.

Ten of 11 IASB members agreed with this decision.

Exemption from disclosing information

The IASB tentatively decided to propose an exemption in specific circumstances that would permit an entity not to disclose information about:

  1. management’s objectives for a business combination;
  2. the metrics and targets management will use to monitor whether the objectives for the business combination are being met; and
  3. quantitative information about synergies expected to arise from the business combination.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to propose no exemption from disclosing information about:

  1. the strategic rationale for the business combination; and
  2. the actual performance in subsequent periods using the metrics management uses to monitor whether the objectives for the business combination are being met.

All 11 IASB members agreed with this decision.

The IASB gave direction on the design of the exemption. In particular, the IASB directed the staff to: (a) allow the exemption in situations in which disclosing an item of information can be expected to prejudice seriously any of the entity’s objectives for the business combination; and (b) supplement the exemption with application guidance.

All 11 IASB members agreed with this direction.

Alternatives not considered further

The IASB tentatively decided:

  1. not to require an entity to disclose only qualitative information in the year of a business combination; and
  2. not to specify metrics that all entities would be required to disclose information about.

All 11 IASB members agreed with this decision.

Next milestone

Decide Project Direction