From the IFRS Institute - March 2, 2023
The International Accounting Standards Board (IASB) voted in November 2022 to retain the impairment-only model for the subsequent measurement of goodwill and not introduce an amortization approach. This decision aligns with the FASB’s conclusion that currently there is no clear case to change the accounting for goodwill. It also ends several years of heated public debate on the matter. The attention now turns to the IASB‘s project to improve disclosures about business combinations and the effectiveness of the goodwill impairment test.
Goodwill amortization vs. impairment under IFRS® Accounting Standards? History repeats
In 2004, the IASB issued IFRS 31 and revised IAS 362 to adopt the impairment-only model and require goodwill to be tested for impairment at least annually. Previously3, goodwill was amortized over its useful life with a rebuttable presumption that its useful life did not exceed 20 years.
In 2013, the IASB started a post-implementation review4 of IFRS 3, and many participants in the review suggested reintroducing goodwill amortization, arguing the impairment test does not work as intended. In response to the feedback, the IASB then investigated whether it could improve the impairment test at a reasonable cost, and also whether it should reintroduce goodwill amortization.
In a Discussion Paper published in 2020, the IASB proposed to retain the impairment-only model but feedback was mixed, for conceptual and practical reasons. Those in favor of reintroducing amortization of goodwill reiterated that the impairment test does not work as intended. They also argued, among other things, that goodwill is a wasting asset, balances are too high, and amortization is simpler and would take the pressure off the impairment test. Those against amortization argued, for example, that goodwill is not a wasting asset with a determinable useful life, and that an impairment-only model makes management more accountable.
Eventually, the IASB concluded in November 2022 that there is not a compelling case to justify potentially reintroducing amortization of goodwill either to improve the information provided to financial statement users or to reduce costs and complexity.