The International Organization of Securities Commissions (IOSCO) said in a public consultation document that it believes that adjustments to rules for writing down goodwill may be necessary. In a document released Thursday, IOSCO said that one critical issue in financial reporting is “insufficient disclosure on goodwill impairment tests.”
IOSCO said it is seeking input from market participants to identify good practices for addressing the risk of unrecognized impairment on accumulated goodwill balances and related disclosures arising from business combinations.
Another goodwill-related issue, according to IOSCO, is sometimes referred to as “too little, too late”.
The IOSCO document explains that scenario this way:
“Under current global accounting standards, goodwill is not amortised and is tested for impairment at least annually. A concern expressed by some stakeholders is that management may use optimistic assumptions in estimating the recoverable amount to reduce the instances where impairment losses that will negatively impact profitability are recognised. As a result, impairment losses may not always be recognised adequately or on a timely basis. In such situations, it is only when the financial performance of a company deteriorates that the company recognises impairment losses and reduces goodwill significantly.”
In a public consultation paper, IOSCO noted that “the issue of ‘too little, too late’ goodwill impairment and the issue of insufficient disclosure on goodwill impairment tests are priority issues in financial reporting.”
FRC responds to consultation
The UK Financial Reporting Council (FRC) published a response to the consultation on proposed amendments to the Audit Enforcement Procedure (AEP) and related guidance launched in April. A news release said that the FRC has decided to put the amendments into practice.
The amended AEP, Guidance to the Case Examiner, and Hearings Guidance will come into force on 30 June.
FRC updates AS TM1 guidance
The FRC issued an update to the guidance for Actuarial Standard Technical Memorandum 1 (AS TM1) version 5.0, a news release said. This replaces the previous version of the guidance issued in October 2022, corrects an error in paragraph 3.9 where a year was incorrectly stated, and provides further clarity on:
- Circumstances in which the FRC expects paragraph C.2.15 (circumstances in which volatility cannot be determined reliably) to be applied; and
- Application of paragraph C.3.12 (guaranteed annuity terms).
The guidance is effective for statutory money purchase illustrations (SMPIs) issued on or after 1 October 2023, the release said.
UK partners with Africa and the Caribbean on climate resilience
The UK will announce new partnerships with developing countries to support their economic resilience, a press release said. These new partnerships look to help developing countries manage debt and deal with climate crises at the Paris Summit.
“The UK’s export credit agency UK Export Finance (UKEF) will work with twelve partner countries in Africa and the Caribbean to allow them to defer debt repayments if they are hit by climate catastrophes, such as hurricanes or floods,” the release said.
The UK announcement at COP27, in November in Egypt, that UKEF would become the first export credit agency globally to offer climate resilient debt clauses (CRDCs) in its direct lending to low-income countries and small island developing states, the release said. Other partners are expected to announce that they will pilot CRDCs.
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