IOSCO publishes its recommendations on Accounting for Goodwill
IOSCO publishes its recommendations on Accounting for Goodwill
The Board of the International Organization of Securities Commissions (IOSCO) has published its report Recommendations on Accounting for Goodwill.
The report is a result of the work of IOSCO’s Committee on Issuer Accounting, Audit and Disclosure, in recognition that the risk of unrecognised impairment on accumulated goodwill and related disclosures, including “close call” situations, is an area of concern. The report includes recommendations for issuers, audit committees (or those charged with governance (TCWG)), and external auditors that aim to enhance the reliability, faithful representation and transparency of goodwill recorded and disclosed in the financial statements.
The recommendations included in the report are:
The report is a result of the work of IOSCO’s Committee on Issuer Accounting, Audit and Disclosure, in recognition that the risk of unrecognised impairment on accumulated goodwill and related disclosures, including “close call” situations, is an area of concern. The report includes recommendations for issuers, audit committees (or those charged with governance (TCWG)), and external auditors that aim to enhance the reliability, faithful representation and transparency of goodwill recorded and disclosed in the financial statements.
The recommendations included in the report are:
- Recommendations Relating to Issuers:
- Issuers should properly recognise all identifiable intangible assets and provide entity-specific disclosure of the factors that make up the goodwill recognised in a business combination.
- Issuers should obtain sufficient evidence to demonstrate that assumptions are reasonable and supportable.
- Issuers should ensure the consistency between assumptions used in goodwill impairment tests and non-financial disclosures.
- Issuers should clearly disclose impairment tests of goodwill.
- Recommendations Relating to Audit Committees (or TCWG):
- Audit Committees (or TCWG) should exercise effective governance over goodwill impairment tests by using IOSCO Report on Good Practices for Audit Committees.
- Recommendations Relating to External Auditors:
- External auditors should challenge management’s assumptions and disclosures.
- External auditors should achieve transparency of audit on goodwill through key audit matters (KAM).