IASB Exposure Draft

Business combinations are often pivotal transactions for the entities involved. A critical aspect of these transactions is the recognition of goodwill, an asset that captures the premium paid over the identifiable net assets of the acquired business. Goodwill plays a significant role in reflecting the strategic value and future economic benefits anticipated from the acquisition. Business combinations are instrumental in shaping the global economy, with transactions reported in 2023 totalling an impressive US$3.2 trillion.
The current global accounting standards, both the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP) mandate that goodwill is not amortized but is instead tested for impairment, at least annually. Despite these measures, stakeholders and regulatory authorities have raised concerns about the potential for management to use optimistic assumptions during impairment testing, which can obscure the true impact of impairment losses on financial performance.
This has given rise to the phenomenon known as “too little, too late,” where impairment losses are only recognized after significant deterioration in a company’s financial performance. In some cases, this decline occurs gradually, leading to “close call” scenarios where the margin between the recoverable amount and the carrying amount narrows over time, eventually triggering the recognition of goodwill impairment.
Given the volatile economic environment, it is crucial for management to conduct a thorough and objective assessment of the current economic