IASB proposes to improve acquisition reporting

The International Accounting Standards Board posted a set of proposals Thursday to enhance the information provided by companies to their investors about acquisitions under International Financial Reporting Standards. 

The proposals in the exposure draft respond to feedback from the IASB's stakeholders who contend that reporting on acquisitions poses difficulties for both investors and companies. Investors complain they lack adequate timely information about acquisitions and post-acquisition performance, while companies see risks and costs in providing some information, especially commercially sensitive information that could be used by competitors. The IASB's stakeholders have also voiced concerns about the effectiveness and complexity of the impairment test for operations that have been allocated as goodwill.

Without direct information about the success of an acquisition, investors who rely on information from the impairment test as a signal of an acquisition being unsuccessful are concerned that impairment losses on goodwill are sometimes recognized too late.

"More transparency about acquisitions is critical to investor confidence," said IASB chair Andreas Barckow in a statement. "In developing this package of proposals, the IASB has maintained an active dialogue with all stakeholders. Our aim is to ensure a balanced approach to enhancing the information companies provide to investors about acquisitions, while also considering the risks and costs to companies." 

The IASB is proposing a set of amendments to IFRS 3, "Business Combinations," that would require companies to report the objectives and related performance targets of their most important acquisitions, including whether these are met in subsequent years. Companies would also be required to furnish information about the expected synergies of all material acquisitions, although they wouldn't be required to disclose information that could compromise their acquisition objectives.

Companies would be required to disclose information about the performance of strategic acquisitions. This proposal would require a company to disclose, in the year of acquisition, information about management's acquisition‑date key objectives and the related targets for the acquisition; and subsequently, the extent to which those acquisition‑date key objectives and related targets are being met.

The IASB is also proposing related amendments to IAS 36, "Impairment of Assets," to make targeted improvements to the impairment test.

The IASB is asking for feedback on the proposals by July 15, 2024. In addition to the exposure draft, it has posted a short video explaining the package of proposals and a snapshot summary document.