Goodwill Disclosures: A CBG Comment on IASB ED/2024/1

Context

The International Accounting Standards Board's Exposure Draft ED/2024/1 proposes substantive revisions to the regime of goodwill disclosure and impairment testing. After a decade of debate initiated by the Post-Implementation Review of IFRS 3, the IASB chose to retain the impairment-only model (rejecting a return to systematic amortization) and proposed a broader package of qualitative and quantitative disclosures on actual acquisition performance.

The three axes of the Exposure Draft

The ED's text is articulated along three axes of change that directly impact Brazilian impairment practice:

1. Subsequent Performance Disclosure: mandatory disclosure of strategic objectives and expected financial metrics at the time of acquisition, compared to actual performance in subsequent fiscal years: throughout the entire life of the recognized goodwill.
2. Aggregation Threshold: introduction of a quantitative threshold (10% of the acquiring entity's base criterion) to define which acquisitions are subject to individualized disclosure, with aggregation permitted for smaller acquisitions.
3. Simplifications to Impairment Testing: permission to use pre-tax cash flows and the same set of assumptions used in the internal budget, reducing operational cost of the test without compromising methodological robustness.

Implication for Brazilian practice

Brazil will follow the package via CPC, maintaining the tradition of full convergence. The practical implication for listed and closely held companies with material goodwill on balance sheet is substantial: the annual impairment test, today often conducted as an isolated technical exercise, becomes part of a continued strategic accountability narrative. The "why we paid that price" needs to be living memorial: not just due diligence memory.

For the internal valuation department, the CFO and the Audit Committee, this means three preparation fronts: (i) reconstruction of the original business case of each relevant acquisition for use as comparative baseline, (ii) adjustment of the impairment framework to incorporate strategic variance analysis, and (iii) integration between M&A team and accounting team to ensure consistent thesis-to-results documentation.

Points of attention

The drafting of the ED leaves open some definitional gray areas that warrant formal commentary. The concept of "Cash-Generating Unit" for disclosure purposes is not aligned with the definition used in the impairment test: there may be different aggregations for the same asset group, generating operational complexity. Additionally, the allowance of pre-tax cash flows with discount-rate calibration may introduce inconsistencies in comparative practices across companies, impairing peer benchmarking.