Investors take note: IASB outlines acquisitions update

Posted on April 7, 2024 by Editor

We recently reported on the International Accounting Standards Board’s (IASB) proposed new amendments designed to enhance transparency in acquisition reporting. Now, to accompany the exposure draft, the IASB’s Investor Perspectives series has taken a closer look at the proposal to explain what it means and why it should matter to investors.

IASB Board Member Zach Gast explains in the article that the proposed changes seek to provide comprehensive information at the time of acquisition and introduce reporting regarding the performance of acquisitions over time. They come off the back of feedback from investors during the IASB’s evaluation of IFRS 3 Business Combinations which indicated that investors do not get enough information to assess the performance of acquisitions, forcing them to rely on goodwill impairment as a rough indicator of performance.

The new acquisition performance reporting requirements will apply to strategic acquisitions only – that is, acquisitions that contribute at least 10% of company revenue, profit, loss, or assets or acquisitions that result in a major new line of business. This helps keep costs down, while focusing on information most useful to investors.

Key objectives and targets of the acquisition will need to be reported, with performance of the acquisition to be assessed against stated expectations.

In addition to new disclosures for strategic acquisitions, the IASB is also proposing to expand disclosures for all material acquisitions – including outlining expected synergies. They also propose targeted amendments to ‘pro forma’ information with another small update to IFRS 3.

Investors are strongly encouraged to contribute to the consultation, which closes 15 July.

At XBRL International we have been thinking about these changes for a while from a digital disclosure perspective. In many respects, these kinds of long term segment disclosures are not well served by existing approaches. Perhaps there needs to be smarter and more consistent mechanisms to “longitudinal” entity-specific disclosures. In other words, if a company makes a strategic acquisition, expecting specific outcomes in terms of efficiency or additional revenues, the proposed amendments will require that they disclose against those targets every year (or in some markets, every quarter). There needs to be easier ways for investors and regulators to keep track of this aspect of individual corporate reports. Food for thought!

Read more here.

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