Subsequent Measurement of Goodwill and Acquired Intangible Assets

 The Private Enterprise Advisory Committee discussed potential proposals to include in a future exposure draft. These proposals will provide relief to private entities and as relevant not-for-profit organizations, from the recognition of intangible assets acquired in combinations and allow them to amortize goodwill.

Goodwill amortization

Most Committee members supported reintroducing goodwill amortization as an accounting policy choice. Committee members noted that this approach allows an entity to choose an accounting policy that meets its needs and its users’ needs. One Committee member noted that the impairment charge may be useful information for users and moving away from the impairment-only model might remove that useful piece of information.

Committee members expressed mixed views on a default 10-year amortization period for goodwill. Most Committee members welcomed this practical solution, citing the difficulty in determining the useful life of goodwill. A few Committee members expressed concerns that the 10-year period, while aligned with other jurisdictions, lacks conceptual merits. Most Committee members indicated that, even if a default amortization period is provided, the entity should have the possibility to amortize goodwill over another useful life if the entity determines that the latter is more appropriate.

Relief from recognizing intangible assets acquired in a business combination

Committee members agreed that any relief to recognize intangible assets acquired in a business combination should be provided as accounting policy choice, and that this policy choice should be contingent on the entity amortizing its goodwill. Committee members also agreed that this accounting policy choice should be applicable to all in-scope transactions entered into and not on a transaction-by-transaction basis.

Committee members expressed mixed views on the scope of the relief. Some Committee members expressed concerns with not recognizing certain intangible assets that generate income or that could be subsequently sold. Others preferred relief applied to all intangible assets, because there are significant valuation costs to measure even a few intangible assets at fair value. These Committee members stressed the importance of weighing costs against benefits when providing this information.

Committee members agreed that, if relief is elected, the entity should provide qualitative disclosures about the separately identifiable intangibles that were acquired in the business combination and subsumed into goodwill.

The AcSB will consider input from the Committee and from other outreach activities at its meeting on July 17, 2024.

The Not-for-Profit Advisory Committee discussed proposals to include in a future exposure draft. These proposals will provide relief to private entities and as relevant, NFPOs, from the recognition of intangible assets acquired in combinations and allow them to amortize goodwill.

The Committee indicated that combinations of NFPOs are rarely observed in practice. In most instances, when NFPOs combine, it is typically accounted for as a merger rather than an acquisition. Some Committee members have seen transactions where NFPOs acquire for-profit entities, leading to acquisition accounting and the recognition of intangible assets and goodwill, but these situations are rare.

The Committee indicated that the potential proposals are not anticipated to have significant unintended consequences for the not-for-profit sector.

The AcSB will consider input from the Committee and from other outreach activities at its meeting on July 17, 2024.

The AcSB discussed and approved a project proposal for a standard-setting project allowing private enterprises and, to the degree impacted, not-for-profit organizations to amortize goodwill and to provide relief from recognizing certain or all intangible assets acquired in a business combination. To streamline the process, the Board opted for extensive preliminary outreach, including public engagement, rather than issuing a consultation paper. This approach aims to expedite financial reporting relief and ensure well-informed proposals for inclusion in an exposure draft.

The AcSB plans to complete preliminary outreach activities with interested and affected parties in May and June 2024. Opportunities to participate in outreach activities will posted on the Subsequent Measurement of Goodwill and Acquired Intangible Assets project page. Feedback from preliminary outreach will be discussed at the Board’s July 2024 meeting, leading to decisions on proposals for inclusion in an exposure draft.

The AcSB discussed research findings and feedback from its Not-for-Profit Advisory Committee, Private Enterprise Advisory Committee and Small Practitioners Working Group on the challenges related to the subsequent measurement of goodwill and the recognition of intangible assets acquired in a business combination. The Board also discussed a potential standard-setting project that would allow private enterprises to amortize goodwill and offer relief from the recognition of intangible assets acquired in a business combination.

The AcSB agreed that the project should address both the subsequent measurement of goodwill and the relief from recognition of acquired intangible assets. The Board also determined that this project should consider the implications for entities applying both Parts II and III of the CPA Canada Handbook – Accounting. The Board highlighted the need to conduct more public outreach before issuing an exposure draft.

The AcSB will discuss a project proposal at its March 2024 meeting.

The Not-for-Profit Advisory Committee discussed challenges related to the recognition of intangible assets acquired in combinations and the subsequent measurement of goodwill. The Committee also explored the idea of providing relief to private enterprises and NFPOs from the recognition of intangible assets acquired in combinations and to allow them to amortize goodwill.

Committee members expressed that, overall, combinations are rare for NFPOs. When an NFPO acquires another NFPO, it is typically accounted for as a merger. There are a growing number of transactions where NFPOs acquire for-profit organizations, leading to a combination and the recognition of intangible assets and goodwill, but this situation remains rare. As a result, goodwill and acquisition-related intangible assets are rarely separately recognized on NFPOs’ balance sheets.

Since it is rarely seen in practice, Committee members did not highlight the need to provide additional relief from the recognition of intangible assets for NFPOs. However, the Committee did not object to providing such relief. Similarly, while goodwill is not prevalent in the not-for-profit sector, the Committee supported the idea of reintroducing the amortization of goodwill for private enterprises and NFPOs.

In January 2024, the AcSB will discuss its ongoing research. The Board will consider input from the Not-for-Profit Advisory Committee, the Small Practitioners Working Group, and the Private Enterprise Advisory Committee in deciding whether to move forward with the project.