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UKSA and ShareSoc response to the IASB’s consultation on Business Combinations
On 31 Dec 2020 the UK Shareholders Association and ShareSoc submitted a joint response to The IASB’s Discussion Paper on Business Combinations – Disclosures, Goodwill and Impairment (DP/2020/1)
Our key messages are:
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- We support the Board’s overall objective of enhancing disclosure on acquisitions and their subsequent performance. Current disclosure is extremely unsatisfactory. As a result we agree with the Board’s preliminary views set out in paragraph IN9 with the modifications and qualifications set out in this letter. We would also argue that there is a need to keep cumulative and separate goodwill and impairment disclosures for each acquisition.
- We do not regard testing goodwill for impairment as either robust or desirable.
- We concur with the Board’s opposition to the reintroduction of goodwill amortisation.
- We do not see any need to require companies to report total equity excluding goodwill as this number is easy to derive if required.
- We regard separate classifications of all intangibles as useful and, as a minimum, we would like to see separate disclosure of internally generated intangible assets and those created during the acquisition consolidation process.
The full response can be read here:
UKSA ShareSoc response final to IFRS ED General Presentation and Disclosures 31.12.20
The Discussion paper can be read here https://cdn.ifrs.org/-/media/project/goodwill-and-impairment/goodwill-and-impairment-dp-march-2020.pdf
Post Date: January 1, 2021
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Sorry not to have had time to get involved in our response before. One aspect of the accounting for business combinations that I feel strongly about is the required artificial identification of items such as “customer relationships” and their subsequent amortisation. IMO amortisation of customer relationships leads to double counting, as they are continuously renewed and increased by marketing spend (which is expensed every year). Due to this nonsense, firms invariably present “adjusted” accounts, that exclude the amortisation of such items, leading to confusion amongst investors, whether to believe the adjusted figures (especially for EPS) or only to trust the statutory figures.
Ideagen is a prime example. As a highly acquisitive company, its adjusted figures are very different to the statutory ones and software such as Stockopedia produces a very different picture of the company’s performance from that favoured by analysts and the company.