(a) relates to the identifiable assets acquired or liabilities or contingent liabilities assumed in a business combination that was effected in the current or a previous period; and
(b) is of such size, nature or incidence that disclosure is relevant to an understanding of the combined entity's financial performance.
BC176 In relation to the third disclosure objective outlined in paragraph BC170, the Board concluded that the requirement to disclose a reconciliation of the carrying amount of goodwill at the beginning and end of the period should be amended to require separate disclosure of net exchange differences arising during the period.
BC177 After deciding on these additional disclosure requirements, the Board observed that there might be situations in which the information disclosed under the specific requirements does not completely satisfy the three disclosure objectives outlined in paragraph BC170. The Board therefore agreed that the IFRS should require disclosure in these situations of such additional information as is necessary to meet those objectives.
BC178 Paragraph 67 of the IFRS also requires that when equity instruments are issued or issuable as part of the cost of a business combination, the acquirer should disclose the number of equity instruments issued or issuable, the fair value of those instruments, and the basis for determining that fair value. The Board concluded that, although IAS 22 did not explicitly require disclosure of this information, it should have nonetheless been provided by the acquirer as part of disclosing the cost of acquisition and a description of the purchase consideration paid or contingently payable in accordance with paragraph 87(b) of IAS 22. The Board decided that to avoid the IFRS being inconsistently applied, the IFRS should explicitly require disclosure of this information.
Transitional provisions and effective date (paragraphs 78-85)
BC179 Except as discussed in paragraphs BC181-BC184, the IFRS applies to the accounting for business combinations for which the agreement date is on or after 31 March 2004 (ie the date the IFRS was issued), and to the accounting for any goodwill or excess arising from such a business combination.
BC180 The Board observed that requiring the IFRS to be applied retrospectively to all business combinations for which the agreement date is before the date the IFRS was issued might improve the comparability of financial information. However, such an approach would be problematic for the following reasons:
(a) it is likely to be impossible for many business combinations because the information needed may not exist or may no longer be obtainable.
(b) it requires the determination of estimates that would have been made at a prior date, and therefore raises problems in relation to the role of hindsight—in particular, whether the benefit of hindsight should be included or excluded from those estimates and, if excluded, how the effect of hindsight can be separated from the other factors existing at the date for which the estimates are required.
The Board concluded that the problems associated with applying the IFRS retrospectively, on balance, outweigh the benefit of improved comparability of financial information.
Limited retrospective application (paragraph 85)
BC181 The Board then considered whether retrospective application of the IFRS to business combinations for which the agreement date is before the date the IFRS is issued should nonetheless be permitted. In developing ED 3 the Board concluded that this would have the effect of providing preparers of financial statements with an option in respect of transitional provisions, thereby undermining both the comparability of financial information and the Board's efforts to eliminate options from IFRSs. Therefore, ED 3 proposed prohibiting retrospective application of the IFRS to combinations for which the agreement date is before the date the IFRS is issued.
BC182 Some respondents to ED 3 were concerned that prohibiting retrospective application of the IFRS to combinations for which the agreement date is before the date the IFRS is issued would not be consistent with the option provided to first-time adopters in IFRS 1 First-time Adoption of International Financial Reporting Standards. IFRS 1 permits a first-time adopter to restate a past business combination to comply with IFRSs, provided it also restates all later business combinations. In considering this issue, the Board observed the following:
(a) requiring the IFRS to be applied retrospectively to all past business combinations would be problematic for the reasons described in paragraph BC180.
(b) IFRS preparers that are also US registrants would have the necessary information to apply US Statements of Financial Accounting Standards 141 Business Combinations and 142 Goodwill and Other Intangible Assets, from the effective date of those Standards. The availability of that information would make application of the IFRS and the revised versions of IAS 36 and IAS 38 practicable from at least that same date.
BC183 The Board noted that giving entities the option of applying the IFRS to past business combinations from any date before the IFRS's effective dates would impair the comparability of financial information. However, the Board also noted that the issue of any new or revised IFRS reflects its opinion that application of that IFRS will result in more useful information being provided to users about an entity's financial position, performance or cash flows. On that basis, a case exists for permitting, and indeed encouraging, entities to apply a new or revised IFRS before its effective date. The Board concluded that if it were practicable for an entity to apply the IFRS from any date before the IFRS's effective dates, users of the entity's financial statements would be provided with more useful information than was previously the case under IAS 22. The Board concluded that the benefit of providing users with more useful information about an entity's financial position and performance by allowing limited retrospective application of this IFRS outweighs the disadvantages of potentially diminished comparability.
BC184 Therefore, unlike the proposals in ED 3, the IFRS permits entities to apply the requirements of the IFRS from any date before the effective dates outlined in paragraphs 78-84 of the IFRS, provided:
(a) the valuations and other information needed to apply the IFRS to past business combinations were obtained at the time those combinations were initially accounted for; and
(b) the entity also applies the revised versions of IAS 36 and IAS 38 prospectively from that same date, and the valuations and other information needed to apply those Standards from that date were previously obtained by the entity so that there would be no need to determine estimates that would need to have been made at a prior date.
Previously recognised goodwill (paragraphs 79 and 80)
BC185 The requirement to apply the IFRS to the accounting for business combinations for which the agreement date is on or after the date the IFRS is issued (or from an earlier date if the entity elects to apply paragraph 85 of the IFRS) raises a number of additional issues. One is whether goodwill acquired in a business combination for which the agreement date was before the date the IFRS is first applied should continue to be accounted for after that date in accordance with the requirements in IAS 22 (ie amortised and impairment tested), or in accordance with the requirements in the IFRS (ie impairment tested only). A similar issue exists for negative goodwill arising from a business combination for which the agreement date was before the date the IFRS is first applied. This latter issue is discussed in paragraphs BC189-BC195.
BC186 Consistently with its earlier decision about the accounting for goodwill after initial recognition (see paragraphs BC136-BC142), the Board concluded that non-amortisation of goodwill in conjunction with testing for impairment is the most representationally faithful method of accounting for goodwill and therefore should be applied in all circumstances, including to goodwill acquired in a business combination for which the agreement date was before the date the IFRS is first applied. The Board also concluded that if amortisation of such goodwill were to continue after the date the IFRS is first applied, financial statements would suffer the same lack of comparability that persuaded the Board to reject a mixed approach to accounting for goodwill, ie allowing entities a choice between amortisation and impairment testing.
BC187 As a result, the Board concluded that the IFRS should be applied prospectively, from the beginning of the first annual period beginning on or after the date the IFRS is issued (or from an earlier date if the entity elects to apply paragraph 85 of the IFRS), to:
(a) goodwill acquired in a business combination for which the agreement date was before the date the IFRS is first applied; and
(b) goodwill arising from an interest in a jointly controlled entity obtained before the date the IFRS is first applied and accounted for by applying proportionate consolidation.
BC188 In response to comments received on ED 3, the IFRS also clarifies that if an entity previously recognised goodwill as a deduction from equity, it should not recognise that goodwill in profit or loss if it disposes of all or part of the business to which that goodwill relates or if a cash-generating unit to which the goodwill relates becomes impaired.
Previously recognised negative goodwill (paragraph 81)
BC189 The Board considered whether the carrying amount of negative goodwill arising from a business combination for which the agreement date was before the date the IFRS is issued (or from an earlier date if the entity elects to apply paragraph 85 of the IFRS) should:
(a) continue to be accounted for after the date the IFRS is first applied in accordance with the requirements in IAS 22, ie deferred and recognised in profit or loss in future periods by matching the excess against the related future losses and/or expenses; or
(b) be derecognised on the date the IFRS is first applied with a corresponding adjustment to the opening balance of retained earnings.
BC190 In considering this issue, the Board observed that IAS 22 did not permit an acquirer to recognise the acquiree's contingent liabilities at the acquisition date as part of allocating the cost of a business combination. The Board also observed that the application of IAS 22 in practice would probably have resulted in liabilities arising as a consequence of the combination that were not liabilities of the acquiree immediately before the combination being incorrectly recognised as part of allocating the cost of the combination. Therefore, the carrying amount of negative goodwill arising from a combination for which the agreement date was before the date the IFRS is first applied is likely to comprise one or more of the following components:
(a) unrecognised contingent liabilities of the acquiree at the acquisition date.
(b) errors in measuring the fair value of either the consideration paid or the identifiable net assets acquired. These measurement errors could, for example, relate to a failure properly to reflect expectations of future losses and expenses in the market value of the acquiree's identifiable net assets.
(c) a requirement in an accounting standard to measure identifiable net assets acquired at an amount that is not fair value.
(d) a bargain purchase.
BC191 The Board concluded that with the exception of the acquiree's contingent liabilities, the above components do not satisfy the definition of a liability. Therefore, they should not continue to be recognised as deferred credits in the balance sheet after the date the IFRS is first applied.
BC192 The Board noted that, to the extent the carrying amount of negative goodwill on the date the IFRS is first applied comprises contingent liabilities of the acquiree at the acquisition date, those contingent liabilities may or may not have been resolved. If the contingent liability has been resolved, the related expense (if any) will have been recognised by the combined entity in profit or loss. The Board therefore concluded that any component of the carrying amount of negative goodwill that relates to contingent liabilities of the acquiree that have been resolved should be derecognised on the date the IFRS is first applied.
BC193 The Board observed that if a contingent liability included within the carrying amount of negative goodwill at the date the IFRS is first applied has not been resolved, the portion of the carrying amount attributable to that contingent liability might, in theory, be able to be isolated and carried forward as a liability after the date the IFRS is first applied. However, the Board agreed that isolating the contingent liability is likely to be extremely difficult in practice: the information needed may not exist or may no longer be obtainable. In addition, it requires the determination of estimates that would have been made at a prior date, and therefore raises problems in relation to the role of hindsight.
BC194 Furthermore, IAS 22 required negative goodwill to be deferred and recognised as income in future periods by matching the excess against the related future losses and/or expenses that were identified in the acquirer's plan for the acquisition and could be measured reliably. To the extent the negative goodwill did not relate to expectations of future losses and expenses that were identified in the acquirer's plan and could be measured reliably, an amount not exceeding the aggregate fair values of the identifiable non-monetary assets acquired was recognised as income on a systematic basis over the remaining weighted average useful life of the identifiable depreciable assets acquired. Any remaining negative goodwill was recognised as income immediately. Therefore, if the acquiree's unresolved contingent liability was not identified in the acquirer's plan for the acquisition, some or all of that contingent liability would have been recognised as income before the date the IFRS is first applied, adding an additional layer of complexity to trying to isolate the portion of the carrying amount attributable to the unresolved contingent liability.
BC195 On the basis of these arguments, the Board concluded that the IFRS should require derecognition of the full carrying amount of negative goodwill at the beginning of the first annual period beginning on or after the date the IFRS is issued (or at an earlier date if the entity elects to apply paragraph 85 of the IFRS), with a corresponding adjustment to the opening balance of retained earnings.
Previously recognised intangible assets (paragraph 82)
BC196 The IFRS clarifies the criteria for recognising intangible assets separately from goodwill. The Board therefore considered whether entities should be required to apply those criteria to reassess:
(a) the carrying amount of intangible assets acquired in business combinations for which the agreement date was before the date the IFRS is issued (or at an earlier date if the entity elects to apply paragraph 85 of the IFRS) and reclassify as goodwill any that do not meet the criteria for separate recognition; and
(b) the carrying amount of goodwill acquired in business combinations for which the agreement date was before the date the IFRS is issued (or at an earlier date if the entity elects to apply paragraph 85 of the IFRS) and reclassify as an identifiable intangible asset any component of the goodwill that meets the criteria for separate recognition.
BC197 The Board noted that determining whether a recognised intangible asset meets the criteria for recognition separately from goodwill would be fairly straightforward, and that requiring reclassification as goodwill if the criteria are not met would improve the comparability of financial statements. However, identifying and reclassifying intangible assets that meet those criteria but were previously subsumed in goodwill would be problematic for the same reasons that it would be problematic to require retrospective application of the requirements in the IFRS to all past business combinations.
BC198 As a result, the Board concluded that the IFRS should require the criteria for recognising intangible assets separately from goodwill to be applied only to reassess the carrying amounts of recognised intangible assets acquired in business combinations for which the agreement date was before the date the IFRS is issued (or at an earlier date if the entity elects to apply paragraph 85 of the IFRS). The IFRS should not require the criteria to be applied to reassess the carrying amount of goodwill acquired before the date the IFRS is first applied.
BC199 The Board noted that the transitional provisions in the previous version of IAS 38 Intangible Assets permitted, but did not require, retrospective reclassification of an intangible asset acquired in a business combination that was an acquisition and subsumed within goodwill but which satisfied the criteria in IAS 22 and the previous version of IAS 38 for recognition separately from goodwill. However, the Board observed that adopting such an approach in the IFRS would have the effect of providing preparers of financial statements with an option in respect of transitional provisions, thereby undermining both the comparability of financial information and the Board's efforts to eliminate options from IFRSs. The Board further observed that such an option was likely to act as an incentive to restate financial statements only if that restatement serves to benefit the entity in some way. Therefore, the Board decided that the IFRS should also not permit the option of applying the criteria for recognising intangible assets separately from goodwill to goodwill acquired before the date the IFRS is first applied.
Equity accounted investments (paragraphs 83 and 84)
BC200 Consistently with its decision that the IFRS should apply to the accounting for business combinations for which the agreement date is on or after the date the IFRS is issued and any goodwill or excess arising from such combinations (or from an earlier date if the entity elects to apply paragraph 85 of the IFRS), the Board agreed that the IFRS should also apply to the accounting for any goodwill or excess included in the carrying amount of an equity accounted investment acquired on or after the date the IFRS is first applied. Therefore, if the carrying amount of the investment includes goodwill, amortisation of that notional goodwill should not be included in the determination of the investor's share of the investee's profit or loss. If the carrying amount of the investment includes an excess, the amount of that excess should be included as income in the determination of the investor's share of the investee's profit or loss in the period in which the investment is acquired.
BC201 However, as outlined in paragraph BC185, the requirement for the IFRS to be applied to the accounting for goodwill or any excess arising from business combinations for which the agreement date is on or after the date the IFRS is issued (or from an earlier date if the entity elects to apply paragraph 85 of the IFRS) raises a number of additional issues. One is whether goodwill acquired in a combination for which the agreement date was before the date the IFRS is first applied should be accounted for after that date in accordance with IAS 22 or the IFRS. Another is whether the carrying amount of negative goodwill arising from a combination for which the agreement date was before the date the IFRS is first applied should be accounted for after that date as a deferred credit in accordance with IAS 22 or derecognised.
BC202 Related to these issues are questions of whether, for equity accounted investments acquired before the date the IFRS is first applied, an investor should calculate its share of the investee's profit or loss after that date by:
(a) in the case of an investment that notionally includes goodwill within its carrying amount, continuing to include an adjustment for the amortisation of that goodwill; or
(b) in the case of an investment that notionally includes negative goodwill in its carrying amount, continuing to reflect the deferral and matching approach required by IAS 22 for that negative goodwill.
BC203 For the reasons the Board concluded that previously recognised goodwill should be accounted for after the date the IFRS is first applied by applying the requirements in the IFRS (see paragraphs BC186 and BC187), the Board also concluded that any goodwill included in the carrying amount of an equity accounted investment acquired before the date the IFRS is first applied should be accounted for after that date by applying the requirements in the IFRS. Therefore, amortisation of that notional goodwill should not be included in the determination of the investor's share of the investee's profit or loss.
BC204 Similarly, for the reasons the Board concluded that previously recognised negative goodwill should be derecognised (see paragraphs BC189-BC195), the Board also concluded that any negative goodwill included in the carrying amount of an equity accounted investment acquired before the date the IFRS is first applied should be derecognised at the date the IFRS is first applied, with a corresponding adjustment to the opening balance of retained earnings.
Dissenting opinions on IFRS 3
Dissent of Geoffrey Whittington and Tatsumi Yamada
DO1 Professor Whittington and Mr Yamada dissent from the issue of this Standard.
DO2 Professor Whittington dissents on three grounds: first, the Board's decision to defer consideration of 'fresh start’ accounting rather than implementing it immediately in place of pooling of interests accounting; second, the recognition criteria for intangible assets acquired and contingent liabilities assumed in a business combination; and third, the abolition of the amortisation of goodwill.
DO3 Mr Yamada dissents because he objects to the abolition of the amortisation of goodwill.
Fresh start accounting
DO4 Professor Whittington notes that fresh start accounting treats the business combination as creating a new entity. It therefore requires revaluation of all the assets of the combining entities (including, when the method is applied in its purest form, goodwill) at current value at the date of the combination. In effect, it applies the purchase method to both parties to the combination. It therefore provides, in Professor Whittington's view, an appropriate representation of the economic reality of a 'true merger’ or 'uniting of interests' in which all parties to the combination are radically affected by the transaction. The fresh start approach is long established in the accounting literature and a version of it (the new entity method) was suggested in E22 (1981) Accounting for Business Combinations, the exposure draft that preceded IAS 22 (1983) Accounting for Business Combinations. Professor Whittington believes that further consideration of this method should not have been deferred.
DO5 Professor Whittington also believes that while IFRS 3 correctly acknowledges that true mergers may exist (see paragraphs BC40-BC42 and BC47), it may underestimate the range of business combinations that might be included in this category. In Professor Whittington's view, a 'true acquisition’ may be characterised as being similar to an investment by the acquiring business, which may extend the business but does not radically affect the existing activities of the acquirer. A 'true merger’ on the other hand leads to a radical change in the conduct of all existing activities. Between these two extremes is a range of business combinations that fall less easily into one category or the other. When the pooling of interests method was the alternative accounting treatment available for mergers (as in IAS 22), the radical differences between the outcome of applying that method and the purchase method led to the possibility of accounting arbitrage across the merger/acquisition boundary (as is suggested in paragraph BC48(b)). Professor Whittington believes that because the fresh start method is, in effect, an extension of the purchase method, the incentives for such arbitrage would probably be less were the fresh start method substituted for the pooling of interests method as the appropriate treatment for mergers.
DO6 Professor Whittington believes that IFRS 3 is correct in its prohibition of the pooling of interests method, because that method does not take account of the values arising from the business combination transaction. However, IFRS 3 is wrong to substitute the purchase method for the pooling of interests method, enforcing the identification of an acquirer even when this is acknowledged to be extremely difficult and may fail to capture the economic substance of the transaction, as in the case of the 'roll-up transactions' described in paragraph BC22. In such circumstances, the fresh start method should be permitted.
Recognition criteria for intangible assets acquired and contingent liabilities assumed in a business combination
DO7 Professor Whittington dissents from the recognition criteria in paragraph 37 insofar as they exempt intangible assets acquired and contingent liabilities assumed in a business combination from the requirement that the inflows or outflows of benefits will probably flow to the acquirer. The Board acknowledges in paragraphs BC96 and BC112 that this is inconsistent with the Framework and, in the case of contingent liabilities, with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Professor Whittington believes that such a step should not be taken in advance of a full review of the recognition criteria in the Framework.
Abolition of goodwill amortisation
DO8 Professor Whittington and Mr Yamada observe that the amortisation of goodwill is a well-established and well-understood practice. The requirements of IAS 22, including the rebuttable presumption of a 20-year useful life and an impairment test, appear to have given rise to no obvious difficulties.
DO9 Professor Whittington and Mr Yamada believe that the benefits of amortisation are its simplicity, its transparency and its precise targeting of the acquired goodwill, as opposed to the internally generated goodwill of the acquiring entity or the subsequent internally generated goodwill. The result is that management is made accountable for its expenditure on goodwill.
DO10 Professor Whittington and Mr Yamada acknowledge that two valid criticisms are made of amortisation: it is arbitrary, although not necessarily more arbitrary than the amortisation of other assets, and there is little evidence it is of significant value to users, as indicated by empirical studies of its impact on share prices. However, Professor Whittington and Mr Yamada believe that the arbitrariness can be overcome to a large extent by the additional use of impairment tests (as was required by IAS 22), and that the lack of immediate impact of amortisation on share prices does not negate the benefits of accountability. Indeed, it can reasonably be argued that the measurement of goodwill is intrinsically unreliable, and that a transparent if somewhat arbitrary method, such as amortisation, is less likely to mislead the market than the impairment-only approach required in IFRS 3, which, in the view of Professor Whittington and Mr Yamada, purports to capture economic reality but fails to do so.
DO11 Professor Whittington and Mr Yamada also believe that the abolition of goodwill amortisation in favour of an impairment-only approach is inconsistent with the general principle that internally generated goodwill should not be recognised. They agree with the Board's analysis in paragraphs BC130 and BC131 regarding the components of 'core goodwill', and note that the Board correctly acknowledges in paragraph BC140 that core goodwill acquired in a business combination is consumed over time and replaced by internally generated goodwill, provided that an entity is able to maintain the overall value of goodwill. In other words, the acquired core goodwill has a limited useful life, notwithstanding that it might be difficult to determine that useful life otherwise than in an arbitrary manner. Professor Whittington and Mr Yamada therefore believe that the amortisation of acquired goodwill over its useful life to reflect its consumption over that useful life is more representationally faithful than the impairment-only approach required by IFRS 3, even if the useful life and pattern of consumption can be determined only arbitrarily. The potential for arbitrariness does not provide sufficient grounds for ignoring the fact that the value of the acquired goodwill diminishes over its useful life as it is consumed. Thus, Professor Whittington and Mr Yamada are of the view that amortisation with regular impairment testing should be the required method of accounting for goodwill after its initial recognition. Professor Whittington and Mr Yamada note that the respondents to ED 3 that expressed a clear view on this issue generally supported straight-line amortisation (provided there is no evidence that an alternative pattern of amortisation is more representationally faithful) coupled with an impairment test whenever there is an indication that the goodwill might be impaired (see paragraph BC139). Professor Whittington and Mr Yamada agree with these respondents, and disagree with the Board's analysis of their comments (as set out in paragraphs BC140 and BC141).
DO12 Professor Whittington is additionally concerned that in rejecting amortisation, IFRS 3 puts its faith in a potentially unreliable impairment test that inevitably cannot separate out subsequent internally generated goodwill and has other weaknesses that require attention. Until greater experience of such tests has been accumulated, it cannot be established that they pass the cost/benefit test for the majority of entities affected. The costs of the impairment tests are likely to be high and the benefits may be diminished by their potential unreliability. Thus, amortisation supplemented by an impairment test (as was required by IAS 22) should be retained as the required method of accounting for goodwill. Professor Whittington is of the view that annual impairment tests without amortisation could be permitted as an alternative treatment when it is possible to rebut the presumption that goodwill has a determinable life. In such cases, impairment testing can be regarded as an alternative technique for achieving a similar objective to amortisation (measuring the consumption of goodwill), rather than being in direct conflict with the method previously required by IAS 22. This treatment of goodwill would also be consistent with the treatment of intangible assets. Neither method will achieve the objective of measuring the consumption of goodwill perfectly: accounting for goodwill is one of the most difficult problems in financial reporting, and the difficulty arises from the nature of goodwill.
DO13 Mr Yamada shares Professor Whittington's concern that, in rejecting amortisation, IFRS 3 puts its faith in a potentially unreliable impairment-only approach that inevitably cannot separate out subsequent internally generated goodwill and has other weaknesses that require attention. Mr Yamada views the impairment-only approach for goodwill as particularly unsatisfactory because of the failure of the impairment test in IAS 36 Impairment of Assets to eliminate the internally generated goodwill of the acquiring entity at the acquisition date and internally generated goodwill accruing after a business combination. He believes that including these items in the measure of goodwill will inappropriately provide 'cushions' against recognising impairment losses that have in fact occurred in respect of the acquired goodwill. Such 'cushions', combined with the abolition of the amortisation of acquired goodwill, will improperly result in an entity recognising internally generated goodwill as an asset, up to the amount initially recognised for the acquired goodwill. Mr Yamada acknowledges that many of the 'cushioning’ problems existed, to a certain extent, under the previous approach in IAS 22 and IAS 36 Impairment of Assets of amortising goodwill in conjunction with regular impairment testing using the 'one-step’ impairment test in the previous version of IAS 36. However, he believes that the previous approach provided more appropriate information because it ensured that the carrying amount of acquired goodwill was reduced to zero at the end of its useful life, even though there was a degree of arbitrariness in determining that useful life and the pattern of the acquired goodwill's consumption. The previous approach also ensured that, ultimately, no internally generated goodwill could be recognised. Under IFRS 3, if a business combination is so successful that the recoverable amount of a cash-generating unit to which goodwill has been allocated continues to exceed its carrying amount, the goodwill allocated to that unit will continue indefinitely to be recognised at its fair value at the acquisition date. Mr Yamada does not agree that this is a representationally faithful method of accounting for an asset that is consumed over time and replaced by internally generated goodwill. He believes that the previous approach provided a more transparent and representationally faithful method of accounting for acquired goodwill than the impairment-only approach required by IFRS 3.
DO14 Mr Yamada notes the Board's conclusion, as set out in paragraph BC142, that if a rigorous and operational impairment test could be devised, more useful information would be provided under an approach in which goodwill is not amortised, but instead tested for impairment annually or more frequently if events or changes in circumstances indicate that the goodwill might be impaired. Mr Yamada is of the view that the Board's decision to withdraw the 'two-step’ impairment test for goodwill proposed in the Exposure Draft of Proposed Amendments to IAS 36, in favour of retaining the 'one-step’ approach to measuring impairments of goodwill in the previous version of IAS 36 does not meet the requirement of'a rigorous and operational impairment test’. He is also of the view that the requirement in paragraph 104(a) of IAS 36 for impairment losses to be allocated first to reduce the carrying amount of any goodwill allocated to a cash-generating unit is inconsistent with the view set out in paragraph BC132 that 'core goodwill’ represents resources from which future economic benefits are expected to flow to the entity. This inconsistency strengthens Mr Yamada's view that the impairment-only approach is not a transparent and representationally faithful method of accounting for acquired goodwill. Nevertheless he welcomes the Board's decision to retain the 'one-step’ approach to measuring impairments of goodwill because he believes that the requirements proposed in the Exposure Draft of Proposed Amendments to IAS 36 for measuring the implied value of goodwill were extremely complex, unduly burdensome, and would have resulted in a hypothetical measure unrelated to the acquired goodwill being tested for impairment.