12 July 2024
Dr. Andreas Barckow
Chair
International Accounting Standards Board
Columbus Building, 7 Westferry Circus
Canary Wharf, London, E14 4HD
United Kingdom

Comments on the Exposure Draft (IASB/ED/2024/1)
Business Combinations-Disclosures, Goodwill and Impairment(Proposed amendments to IFRS 3 and IAS 36)

1.

The Accounting Standards Board of Japan (“we”) welcome the opportunity toprovide our comments on the International Accounting Standards Board (“theIASB”)’s Exposure Draft (IASB/ED/2024/1) Business Combinations-Disclosures,
Goodwill and Impairment (Proposed amendments to IFRS 3 and IAS 36) (“the ED”),
issued in March 2024.

2.

Our main comments in this comment letter are as follows.

(Our general view on IASB’s response to the findings related to the accounting for
goodwill in the Post-Implementation Review of IFRS 3)
3.

We regret that reintroduction of amortisation of goodwill was not proposed in theED.

4.

The ED notes that the decision not to reintroduce amortisation of goodwill was madein the context of the post-implementation review (PIR) of IFRS 3 Business
Combinations. Based on this decision, the basic structure of the impairment-only
approach is maintained, and the shielding effect in the impairment test continues toexist and the expenses arising from goodwill continue to be recognised in delay.
These issues, which were identified in the PIR, will not be resolved. We
acknowledge that the ED has proposed some improvements to the effectiveness of
the impairment test, but such proposals merely clarify the existing requirements andwill not resolve the fundamental problem. Goodwill balances have been increasing
continuously over the years and we are concerned that financial statements (inparticular, the statement of financial position) will become less useful in the future.
In this context, we continue to believe that the amortisaton of goodwill needs to bereintroduced.
5.

If the IASB were to retain the current impairment-only approach, as proposed in theED, we think that the logic underlying the adoption of such approach must be sound.
The ED proposes to require entities to disclose how long the benefits expected fromsynergies are expected to last. Synergies are generally considered to be one of thetypical elements that constitute goodwill and, accordingly, this proposal apparently
implies that the useful life of goodwill can usually be estimated. Our understandingis that one of the main arguments for not reintroducing amortisation of goodwill was
the difficulty in estimating the useful life of goodwill, and we think this proposal isinconsistent with the existing requirements in IFRS Accounting Standards.

(Disclosure of information about the performance of business combinations)
6.

The ED proposes to require entities to disclose information about the performanceof business combinations in response to users’ strong needs for better information
about business combinations. The ED argues that the IASB can require entities todisclose such information in the notes to the financial statements because suchinformation allows users to better understand the acquisition prices of businesscombinations.
In this regard, while we recognise that information about the acquisition prices canbe useful to users of financial statements, such as when users assess the profitabilityof business combination transactions, we believe that it is appropriate to disclose
information about the performance of business combinations outside the financial
statements. This is because the proposed information includes specific aims thatmanagement expects to achieve through the business combinations and the extent towhich such aims have been or are being achieved, and the information would be
more useful to users if it is provided together with descriptions of the objective of
the business combinations in the context of the overall business and management's
expectations for the business combinations. The objective of the businesscombinations in the context of the overall business and management’s expectations
for the business combinations are generally explained outside the financial
statements as part of the description of the entity’s business strategy. We believethat information about the acquisition prices of business combinations should be
provided together with the description of the entity’s business strategy for a better
understanding of the entity’s business activities.

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(Disclosure of quantitative information about expected synergies)
7.

We disagree with the proposal to disclose quantitative information about expectedsynergies. We acknowledge that the proposal meets the information needs of usersof financial statements; however, similar to the information about the performanceof business combinations as noted in the previous paragraph, such information
represents specific management's expectations for the business combination, and webelieve that it is appropriate to disclose this information outside the financial
statements together with the description of the entity's business strategy.

8.

Our responses to each of the questions asked in the ED are set out in the Appendix.

We hope that our comments will contribute to future deliberations at the IASB.
feel free to contact us if you have any questions.
Yours sincerely,

Yasunobu Kawanishi
Chair
Accounting Standards Board of Japan3 / 18

PleaseAppendix
Comments on Specific Questions in the ED
Our comments on the specific questions set out in the ED are as follows.
Question 1̶Disclosures: Performance of a business combination (proposed paragraphs
B67A‒B67G of IFRS 3)

In the PIR of IFRS 3 and in responses to the Discussion Paper the IASB heard that:

users need better information about business combinations to help them assess
whether the price an entity paid for a business combination is reasonable and how
the business combination performed after acquisition. In particular, users said theyneed information to help them assess the performance of a business combination
against the targets the entity set at the time the business combination occurred (seeparagraphs BC18–BC21).



preparers of financial statements are concerned about the cost of disclosing that
information. In particular, preparers said the information would be socommercially sensitive that its disclosure in financial statements should not be
required and disclosing this information could expose an entity to increased
litigation risk (see paragraph BC22).

Having considered this feedback, the IASB is proposing changes to the disclosure
requirements in IFRS 3 that, in its view, appropriately balance the benefits and costs ofrequiring an entity to disclose this information. It therefore expects that the proposed
disclosure requirements would provide users with more useful information about theperformance of a business combination at a reasonable cost.
In particular, the IASB is proposing to require an entity to disclose information about
the entity’s acquisition-date key objectives and related targets for a businesscombination and whether these key objectives and related targets are being met(information about the performance of a business combination). The IASB has
responded to preparers’ concerns about disclosing that information by proposing:to require this information for only a subset of an entity’s business combinations—strategic business combinations (see question 2); andto exempt entities from disclosing some items of this information in specificcircumstances (see question 3).

(a) Do you agree with the IASB’s proposal to require an entity to disclose information
about the performance of a strategic business combination, subject to an
exemption? Why or why not? In responding, please consider whether the proposals
appropriately balance the benefits of requiring an entity to disclose the information
with the costs of doing so.
(b) If you disagree with the proposal, what specific changes would you suggest to
provide users with more useful information about the performance of a business4 / 18

combination at a reasonable cost?
(Comments)
1.

The ED proposes to require entities to disclose information about the performanceof business combinations in response to users’ strong needs for better information
about business combinations. The ED argues that the IASB can require entities todisclose such information in the notes to the financial statements because suchinformation allows users to better understand the acquisition prices of businesscombinations.
In this regard, while we recognise that information about the acquisition prices canbe useful to users of financial statements, such as when users assess profitability ofbusiness combination transactions, we note that the means to communicate such
useful information is not limited to the financial statements and believe that suchinformation should be presented using the means through which the information
would be most useful to users of financial statements. Based on this thinking, we
believe that it is appropriate to disclose information about the acquisition prices ofbusiness combinations outside the financial statements for the following reasons:(a) Information about the performance of business combinations includes specificaims that management expects to achieve through the business combinations
and the extent to which such aims have been or are being achieved, and theinformation would be more useful to users if it is provided together with adescription of the objective of the business combinations in the context of theoverall business and management's expectations for the business combinations.
The objective of the business combinations in the context of the overall businessand management’s expectations for the business combinations are generally
explained outside the financial statements, as part of the description of theentity’s business strategy in the business review or so-called Management
Discussion and Analysis (MD&A) in annual reports. When explaining thebusiness strategy, entities explain the main factors of business activities
including the entity’s business focus, measures to grow the business andmeasures to address social issues, and against this background, an entity
explains the roles of business combinations in conducting those activities. We
believe that information about the acquisition prices of business combinations
should be provided together with such information about business strategy for abetter understanding of the entity’s business activities.
(b) The identified key objectives and related targets reflect management's
expectations for the business combinations and have different characteristics
from other information provided in the notes to the financial statements, which
5 / 18are prepared considering the qualitative characteristics of financial information,such as faithful representation (including neutrality), verifiability andcomparability. Accordingly, the characteristics of the key objectives andrelated targets may be misunderstood if such objectives and targets are disclosed
alongside other information in the notes to financial statements.
(c) Some of the key objectives and related targets may be expressed in nonmonetary terms (for example, the increase in the number of customers,
improvements in development capacity, knowledge sharing, etc.), we think thatsuch information would be more appropriately disclosed outside the financial
statements.
(d) The ED proposes entities to disclose acquisition-date key objectives and related
targets of business combinations to provide information about the acquisition
price. While acquisition-date information can be useful in itself, the objectives
and targets of business combinations may change over time as circumstanceschange. In this regard, if an entity were to disclose the information outside thefinancial statements, the entity would not be limited to the information relating
to the acquisition price and would be able to disclose information at theacquisition date as well as additional information that reflects changes incircumstances, which could result in providing more useful information.
2.

In the course of our discussions, some members have expressed a view that, because
the information about the performance of business combinations is useful to users offinancial statements, the IASB should undertake initiatives to establish suchdisclosure practice even when the information is disclosed outside the financial
statements, for example, by amending IFRS Practice Statement No. 1 Management
Commentary, by publishing relevant educational materials, or by referring to thispoint in speeches at seminars hosted by the IASB.

Question 2̶Disclosures: Strategic business combinations (proposed paragraph B67C of
IFRS 3)The IASB is proposing to require an entity to disclose information about theperformance of a business combination (that is, information about the entity’s
acquisition-date key objectives and related targets for the business combination andwhether these key objectives and related targets are being met) for only strategic
business combinations—a subset of material business combinations. A strategic
business combination would be one for which failure to meet any one of an entity’s
acquisition-date key objectives would put the entity at serious risk of failing to achieve
its overall business strategy.
The IASB is proposing that entities identify a strategic business combination using a
6 / 18set of thresholds in IFRS 3—a business combination that met any one of thesethresholds would be considered a strategic business combination (threshold approach)(see paragraphs BC56–BC73).
The IASB based its proposed thresholds on other requirements in IFRS AccountingStandards and the thresholds regulators use to identify particularly importanttransactions for which an entity is required to take additional steps such as providing
more information or holding a shareholder vote. The proposed thresholds are bothquantitative (see paragraphs BC63–BC67) and qualitative (see paragraphs BC68–
BC70).
(a) Do you agree with the proposal to use a threshold approach? Why or why not? If
you disagree with the proposal, what approach would you suggest and why?
(b) If you agree with the proposal to use a threshold approach, do you agree with theproposed thresholds? Why or why not? If not, what thresholds would you suggest
and why?
(Comments)
3.

In our response to Q1, we stated that information about the performance of businesscombinations should be disclosed outside the financial statements. Accordingly,
we note that our comments below on the details of the proposals assume that the
proposed information would be required to be disclosed in the notes to the financial
statements, as opposed to our overall comments on the proposal.

4.

We agree with limiting the scope of business combinations that are subject to the
proposed disclosure requirements by providing a definition of 'strategic businesscombination'. This definition ('a business combination for which failure to meet
any one of an entity’s acquisition-date key objectives would put the entity at serious
risk of failing to achieve its overall business strategy') is set out in paragraph BC54
of the ED but is not included in the main text of the proposed amendments to IFRS
3. This statement explains the basic concept of a strategic business combinationand should be included in the main text.

5.

On the other hand, we do not agree with the threshold approach whereby a businesscombination would be within the scope of the proposed disclosure requirements if
only one of the quantitative thresholds is met. Rather, we believe that a combined
assessment using quantitative factors as well as qualitative factors is necessary.
Paragraph BC55 of the ED describes to some extent the relationship between thequantitative thresholds proposed in the ED and the definition of a strategic businesscombination, but the relationship between those thresholds and the overall businessstrategy in the definition is not sufficiently clear. We are concerned that thisambiguity may cause such a negative consequence as selecting business7 / 18

combinations that have little relevance to the overall business strategy within thescope of the disclosure requirement (for example, a threshold can be a small absolutevalue of operating profit or loss, which is one of the quantitative measures, due to its
high volatility). We acknowledge that the quantitative thresholds have theadvantage of reducing the cost of selection, but they should not be used in isolation.
Rather, we believe that there should be an additional assessment on top of thequantitative thresholds using the qualitative thresholds and the qualitative factors
included in the definition of a strategic business combination. As a result of theadditional assessment, we think some business combinations that would have been
selected by merely meeting the quantitative threshold would not be required to bedisclosed.

Question 3̶Disclosures: Exemption from disclosing information (proposed paragraphs
B67D‒B67G of IFRS 3)

The IASB is proposing to exempt an entity from disclosing some of the informationthat would be required applying the proposals in this Exposure Draft in specificcircumstances. The exemption is designed to respond to preparers’ concerns aboutcommercial sensitivity and litigation risk but is also designed to be enforceable andauditable so that it is applied only in the appropriate circumstances (see paragraphs
BC74–BC107).
The IASB proposes that, as a principle, an entity be exempt from disclosing some
information if doing so can be expected to prejudice seriously the achievement of anyof the entity’s acquisition-date key objectives for the business combination (seeparagraphs BC79–BC89). The IASB has also proposed application guidance (seeparagraphs BC90–BC107) to help entities, auditors and regulators identify thecircumstances in which an entity can apply the exemption.
(a) Do you think the proposed exemption can be applied in the appropriate
circumstances? If not, please explain why not and suggest how the IASB could
amend the proposed principle or application guidance to better address theseconcerns.
(b) Do you think the proposed application guidance would help restrict the applicationof the exemption to only the appropriate circumstances? If not, please explain what
application guidance you would suggest to achieve that aim.
(Comments)
6.

In our response to Q1, we stated that information about the performance of businesscombinations should be disclosed outside the financial statements. Accordingly,
we note that our comments below on the details of the proposals assume that the

8 / 18

proposed information would be required to be disclosed in the notes to the financial
statements, as opposed to our overall comments on the proposal.
7.

We have heard significant concerns about commercial sensitivity of disclosing
information about the performance of business combinations and agree that an
exemption from the proposed disclosure requirements should be provided undercertain conditions.

8.

We also agree that the exemption should be applied in appropriate circumstances andsupport the IASB providing guidance to clarify when the exemption would beapplied.

9.

However, we think that, in relation to the condition for permitting exemptions,focusing on the risk of whether disclosing information can be expected to prejudiceseriously the achievement of any of the entity’s acquisition-date key objectives forthe business combination may not be responsive to the feedback received by the
IASB. In this regard, paragraph BC75 of the ED explains some of the feedback
received from stakeholders:(a) targets—respondents said disclosing targets for a business combination could
reveal information about how an entity prices deals. The entity’s competitors
could use this information to outbid the entity in future deals. Respondents said
this would be particularly problematic if the entity was entering into a series ofstrategically linked acquisitions.
(b) cost-based targets—respondents said disclosing cost-based targets could reveal
an entity’s internal cost structure. An entity’s competitors could use suchinformation to outbid the entity in future tenders and customers could ask forsome of the cost savings to be passed on to them.
(c) employee-related information—respondents said disclosing information
relating to employees (for example, redundancy information) could demotivate
employees or pre-empt some jurisdictions’ legal requirements to inform
employees or trade unions first about potential redundancies.
These examples assume that disclosure would seriously prejudice future businesscombinations or likely future transactions or activities, rather than businesscombinations that have already occurred. Under the proposals in the ED, theexpected serious prejudice to the achievement of the objectives of future businesscombinations and other future transactions or activities would not meet the proposed
condition for exemption. Accordingly, we think that the proposed condition would
not be responsive to the feedback received by the IASB and the condition for the

9 / 18

exemption should be properly revised to address the concerns raised in the feedback
so as not to undermine the objective of providing the exemption.

Question 4̶Disclosures: Identifying information to be disclosed (proposed paragraphs
B67A‒B67B of IFRS 3)

The IASB is proposing to require an entity to disclose information about theperformance of the entity’s strategic business combinations (that is, information about
its acquisition-date key objectives and related targets for a strategic businesscombination and whether these key objectives and related targets are being met) that isreviewed by its key management personnel (see paragraphs BC110–BC114).
The IASB’s proposals would require an entity to disclose this information for as longas the entity’s key management personnel review the performance of the businesscombination (see paragraphs BC115–BC120).
The IASB is also proposing (see paragraphs BC121–BC130) that if an entity’s key
management personnel:

do not start reviewing, and do not plan to review, whether an acquisition-date key
objective and the related targets for a business combination are met, the entity
would be required to disclose that fact and the reasons for not doing so;stop reviewing whether an acquisition-date key objective and the related targets
for a business combination are met before the end of the second annual reporting
period after the year of acquisition, the entity would be required to disclose thatfact and the reasons it stopped doing so; andhave stopped reviewing whether an acquisition-date key objective and the related
targets for a business combination are met but still receive information about the
metric that was originally used to measure the achievement of that key objective
and the related targets, the entity would be required to disclose information about
the metric during the period up to the end of the second annual reporting period
after the year of acquisition.

(a) Do you agree that the information an entity should be required to disclose shouldbe the information reviewed by the entity’s key management personnel? Why or
why not? If not, how do you suggest an entity be required to identify the
information to be disclosed about the performance of a strategic businesscombination?
(b) Do you agree that:(i) an entity should be required to disclose information about the performance ofa business combination for as long as the entity’s key management personnel
review that information? Why or why not?
(ii) an entity should be required to disclose the information specified by the
10 / 18

proposals when the entity’s key management personnel do not start or stop
reviewing the achievement of a key objective and the related targets for a
strategic business combination within a particular time period? Why or whynot?
(Comments)
10. In our response to Q1, we stated that information about the performance of businesscombinations should be disclosed outside the financial statements. Accordingly,
we note that our comments below on the details of the proposals assume that the
proposed information would be required to be disclosed in the notes to the financial
statements, as opposed to our overall comments on the proposal.
11. We agree that the information required to be disclosed should be the information thathas been reviewed by the entity’s senior management.
12. However, we do not agree with limiting management to the entity’s key management
personnel as defined in IAS 24 Related Party Disclosures. As the role ofmanagement is likely to be different in each entity, we believe it is better to leave theidentification of management to the entity rather than to rely on the terminology in
IFRS Accounting Standards as proposed in the ED. Because management would
be held accountable for undertaking strategic business combinations, we believe that
there is little risk in not specifying the level of management in the IFRS AccountingStandards. The proposal states that acquisition-date key objectives required to bedisclosed are those that are critical to the success of the business combination, andthe level of management for the purpose of the disclosure requirements is likely to
be determined by those objectives.
13. Regarding the proposal on the period for which information is to be disclosed, we
believe that it would be better to leave to management the decision on the period,
including the identification of the review that determines the information to bedisclosed, and to require management to explain those decisions. This is because
we do not believe that the proposals in the ED that distinguish the detailed
circumstances of management review are consistent with the objective of the
management approach, which is to provide information from the management’s
perspective.
14. The status or nature of management review may change over time. For example,
reviews that focus on business combinations for which information is disclosed may
transition to a periodic budget cycle review that is regularly conducted in otherbusiness units. If an entity ceases to disclose the information in the notes to thefinancial statements in response to such transition in how management conducts its

11 / 18

review, management should explain the circumstances of the transition in its review
and provide the information necessary to track relevant information subsequently.

Question 5̶Disclosures: Other proposals

The IASB is proposing other amendments to the disclosure requirements in IFRS 3.
These proposals relate to:
New disclosure objectives (proposed paragraph 62A of IFRS 3)
The IASB proposes to add new disclosure objectives in proposed paragraph 62A of
IFRS 3 (see paragraphs BC23–BC28).
Requirements to disclose quantitative information about expected synergies in the yearof acquisition (proposed paragraph B64(ea) of IFRS 3)
The IASB proposes:

to require an entity to describe expected synergies by category (for example,
revenue synergies, cost synergies and each other type of synergy);

to require an entity to disclose for each category of synergies:•the estimated amounts or range of amounts of the expected synergies;•

the estimated costs or range of costs to achieve these synergies; and•the time from which the benefits expected from the synergies are expected tostart and how long they will last; andto exempt an entity from disclosing that information in specific circumstances.

See paragraphs BC148–BC163.
The strategic rationale for a business combination (paragraph B64(d) of IFRS 3)
The IASB proposes to replace the requirement in paragraph B64(d) of IFRS 3 todisclose the primary reasons for a business combination with a requirement to disclose
the strategic rationale for the business combination (see paragraphs BC164–BC165).
Contribution of the acquired business (paragraph B64(q) of IFRS 3)
The IASB proposes to amend paragraph B64(q) of IFRS 3 to improve the information
users receive about the contribution of the acquired business (see paragraphs BC166–
BC177). In particular, the IASB proposes:to specify that the amount of profit or loss referred to in that paragraph is theamount of operating profit or loss (operating profit or loss will be defined as partof the IASB’s Primary Financial Statements project);

to explain the purpose of the requirement but add no specific application guidance;
12 / 18

and

to specify that the basis for preparing this information is an accounting policy.

Classes of assets acquired and liabilities assumed (paragraph B64(i) of IFRS 3)
The IASB proposes to improve the information entities disclose about the pension andfinancing liabilities assumed in a business combination by deleting the word ‘major’from paragraph B64(i) of IFRS 3 and adding pension and financing liabilities to theillustrative example in paragraph IE72 of the Illustrative Examples accompanying
IFRS 3 (see paragraphs BC178–BC181).
Deleting disclosure requirements (paragraphs B64(h), B67(d)(iii) and B67(e) of IFRS
3)The IASB proposes to delete some disclosure requirements from IFRS 3 (seeparagraphs BC182–BC183).
Do you agree with the proposals? Why or why not?
(Comments)
New disclosure objectives
15. As stated in our response to Question 1, we disagree with the proposal to disclose
information about the performance of business combinations in the notes to thefinancial statements and, accordingly, we do not agree with the proposal to add a
disclosure objective to support such disclosure proposal.
Disclosure of quantitative information about expected synergies
16. We disagree with the proposal to disclose quantitative information about expectedsynergies. Synergies envisaged by stakeholders may include qualitative outcomes
expected from business combinations, and synergies may include other elements not
related to goodwill. Given this breadth of the concept, many stakeholders are
confused by the ED’s proposal to disclose quantitative information without an
explanation of the scope and nature of what is expected to be disclosed as synergies.
Our main reasons for disagreeing with the proposal are as follows:(a) It is unclear why the ED proposes such detailed requirements only for synergies
when goodwill consists of different elements.
(b) While we do not necessarily disagree that the proposed information can be
useful to users of financial statements, we think that it would be more useful tousers if the information is provided outside the financial statements, because theinformation represents what management expects from business combinations.
This is similar to our previous comments to Q1 on the proposal to disclose
13 / 18

information about the performance of business combinations. Some further
argue that the information may be unrelated to the transaction price of a businesscombination and the amount of goodwill. We are concerned that thecharacteristics of information may be misunderstood if it is disclosed with otherfinancial information prepared, considering the qualitative characteristics offinancial information, such as faithful representation (including neutrality) as
well as verifiability and comparability.
(c) Many stakeholders think that synergies subject to the disclosure requirements
are unclear. While paragraph BC159 of the ED notes such concerns, paragraph
BC160 of the ED explains that no definition is provided, because the term is
widely understood. However, the synergies envisaged by stakeholders may
include both qualitative and quantitative outcomes expected from businesscombinations, including those not related to goodwill. Because the proposals
in the ED do not explain the scope and nature of the information expected to bedisclosed as synergies, it may not ensure the feasibility of disclosures and may
result in diversity.
The strategic rationale for business combinations
17. We agree with the proposal, because this is in line with the existing requirement and
we recognise the information needs of users.
Contribution of the acquired business
18. We do not necessarily agree with the IASB's definition of operating profit or loss asa residual, in line with our previous comments on the proposals in the Primary
Financial Statements project (such as those in our comment letter on the Exposure
Draft General Presentation and Disclosures) and, accordingly, we remain
unconvinced that information based on the subtotal of operating profit or loss defined
should be provided. However, as explained in paragraph BC170(a) of the ED, we
think that operating profit or loss is generally more helpful than profit or loss inanalysing trends in operating performance.
19. We believe that it is necessary to explain the basis on which the entity prepares
information about the contribution of the acquired business when no application
guidance is provided. However, we think that the proposal to establish it as anaccounting policy should be reconsidered because we question the feasibility of the
proposal given the diverse circumstances surrounding business combinations and thefact that business combinations may be infrequent.
Classes of assets acquired and liabilities assumed
20. We agree with the proposal.
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Deleting disclosure requirements
21. We agree with the proposal.

Question 6̶Changes to the impairment test (paragraphs 80‒81, 83, 85 and 134(a) of
IAS 36)

During the PIR of IFRS 3, the IASB heard concerns that the impairment test of cashgenerating units containing goodwill results in impairment losses sometimes being
recognised too late.
Two of the reasons the IASB identified (see paragraphs BC188–BC189) for theseconcerns were:• shielding; and• management over-optimism.
The IASB is proposing amendments to IAS 36 that could mitigate these reasons (seeparagraphs BC192–BC193).
Proposals to reduce shielding
The IASB considered developing a different impairment test that would besignificantly more effective at a reasonable cost but concluded that doing so would not
be feasible (see paragraphs BC190–BC191).
Instead, the IASB is proposing changes to the impairment test (see paragraphs 80–81,
83 and 85 of IAS 36) to reduce shielding by clarifying how to allocate goodwill to cashgenerating units (see paragraphs BC194–BC201).
Proposal to reduce management over-optimism
The IASB’s view is that management over-optimism is, in part, better dealt with by
enforcers and auditors than by amending IAS 36. Nonetheless, the IASB is proposing
to amend IAS 36 to require an entity to disclose in which reportable segment a cashgenerating unit or group of cash-generating units containing goodwill is included (seeparagraph 134(a) of IAS 36). The IASB expects this information to provide users with
better information about the assumptions used in the impairment test and therefore
allow users to better assess whether an entity’s assumptions are over-optimistic (seeparagraph BC202).
(a) Do you agree with the proposals to reduce shielding? Why or why not?
(b) Do you agree with the proposal to reduce management over-optimism? Why or
why not?
(Comments)

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22. Regarding (a) and (b), we do not disagree with the proposals. However, we do notbelieve that these proposals substantially resolve the issue of delayed recognition of
expenses arising from goodwill, which was the main issue identified in the PIR.
23. Regarding (b), we believe that the wording 'management over-optimism' ismisleading and thus should not be used. This is because this wording could imply
that management optimism is beyond reasonable bounds and that the financial
information presented in the financial statements is misstated. We think thatmanagement optimism contained in the estimates is usually ensured to be withinreasonable bounds by the various mechanisms surrounding the disclosure system,
such as preparers’ compliance with accounting standards, auditors’ audit of financial
statements and regulators’ enforcement.

Question 7̶Changes to the impairment test: Value in use (paragraphs 33, 44‒51, 55,
130(g), 134(d)(v) and A20 of IAS 36)

The IASB is proposing to amend how an entity calculates an asset’s value in use. In
particular, the IASB proposes:

to remove a constraint on cash flows used to calculate value in use. An entity
would no longer be prohibited from including cash flows arising from a future
restructuring to which the entity is not yet committed or cash flows arising from
improving or enhancing an asset’s performance (see paragraphs BC204–BC214).



to remove the requirement to use pre-tax cash flows and pre-tax discount rates incalculating value in use. Instead, an entity would be required to use internallyconsistent assumptions for cash flows and discount rates (see paragraphs BC215–
BC222).

(a) Do you agree with the proposal to remove the constraint on including cash flows
arising from a future restructuring to which the entity is not yet committed or from
improving or enhancing an asset’s performance? Why or why not?
(b) Do you agree with the proposal to remove the requirement to use pre-tax cash
flows and pre-tax discount rates in calculating value in use? Why or why not?
(Comments)
24. Regarding (a), we do not disagree with the proposal. This is because simplification
is expected to be achieved, and because the cash flow projections to be used toestimate value in use should be based on reasonable and supportable assumptions inaccordance with paragraph 33 of IAS 36, which limits the over-statement of value in
use. However, we note that this proposal is likely to increase management

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optimism and is not consistent with the analysis in the ED that optimism is one of
the main causes of delayed recognition of impairment losses.
25. Regarding (b), we agree with the proposal. If there is no theoretical difference inoutcome between the pre-tax basis and the post-tax basis, we do not think that it isnecessary to specify one or the other.

Question 9̶Transition (proposed paragraph 64R of IFRS 3, proposed paragraph 140O
of IAS 36 and proposed paragraph B2 of the Subsidiaries Standard)

The IASB is proposing to require an entity to apply the amendments to IFRS 3, IAS 36
and the Subsidiaries Standard prospectively from the effective date without restatingcomparative information. The IASB is proposing no specific relief for first-time
adopters. See paragraphs BC257–BC263.
Do you agree with the proposals? Why or why not? If you disagree with the proposals,
please explain what you would suggest instead and why.
(Comment)
26. We agree with the proposal.

Other comments

27. We express our sincere respect for the IASB's efforts to date in reaching its
conclusion on the accounting for goodwill in the ED after gathering extensive
information from both sides of stakeholders: those who support the amortisationbased approach and those who support the impairment-only approach.
28. However, we regret that the IASB has not proposed the reintroduction ofamortisation in the ED after years of discussion. We continue to believe that
goodwill is one of the costs related to a business combination that has a wasting
nature, and that amortisation would provide useful information. We also believethat amortisation is an effective way to address the issue of delayed recognition of
expenses arising from goodwill, which was the main issue identified in the PIR andhas been an issue for years. In particular, we note that it is difficult to resolve theshielding effect under the impairment-only approach because the approach does notdistinguish acquired goodwill from internally generated goodwill as a unit of account,and in this regard, we believe that amortisation has the advantage of not causing the

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shielding issue because the approach considers acquired goodwill as a separate unitof account.
29. Paragraphs BC232 and BC 233 of the ED note that the decision not to reintroduce
amortisation of goodwill was made in the context of the PIR. This decisionessentially maintains the basic structure of impairment testing of CGUs including
goodwill. As a result, we believe that the shielding effect in the impairment test
will continue to exist and the issue of delayed recognition of expenses arising fromgoodwill identified in the PIR will not be resolved. In this regard, we acknowledge
that the ED has proposed some improvements to the effectiveness of the impairment
test, but such proposals merely clarify the existing requirements and will not resolve
the fundamental problem. Goodwill balances have been increasing continuously
over the years and we are concerned that the usefulness of financial statements (inparticular, the usefulness of the statement of financial position) will become lessuseful in the future. As significant improvements to the impairment test are notcurrently expected, we continue to believe that the amortisaton of goodwill needs tobe reintroduced.
30. Furthermore, if the IASB were to retain the existing impairment-only approach, as
proposed in the ED, we think that the logic underlying the adoption of such approach
must be sound. The ED proposes to require entities to disclose how long thebenefits expected from synergies are expected to last in paragraph B64(ea).
Synergies are generally considered to be one of the typical elements that constitute
goodwill and, accordingly, this proposal apparently implies that the useful life of
goodwill can usually be estimated. Our understanding is that one of the mainarguments for not reintroducing amortisation of goodwill was the difficulty inestimating the useful life of goodwill, and we think this proposal is inconsistent withthe existing requirements in IFRS Accounting Standards.
[EOD]

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