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Comments from ACCA
April 2003

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the above exposure draft. It was considered by ACCA�s Financial Reporting Committee recently and I am writing to give you their views.

Question 1 � Frequency of impairment tests

We agree that both indefinite-life intangibles and acquired goodwill should be tested for impairment annually, unless they are being amortised. We also consider that where the expected life of intangibles exceeds 20 years an annual impairment test should be required.

We do not see any reason to require impairment tests on intangible assets to be done at the end of the year, while those on goodwill may be done at any consistent point during the year. In both cases we consider they could be done at any consistent point in the year. In practice the impairment test on all such unamortised assets relating to a business entity or segment may be best done at the same time, as the same future cash flows may be supporting all of the assets in question.

Question 2 � Intangible assets with indefinite useful lives

Intangible assets acquired in a business combination are difficult to separate from goodwill in principle and in practice. To do so involves subjective choices and estimates. As far as possible therefore they should be accounted for in the same way, including an annual impairment test where no amortisation is being charged.

Question 3 � Measuring value in use

We agree with the proposals in this regard.

The new guidance in paragraph 25A of the standard seems helpful. Appendix B, however, which is intended to expand on this area appears not to deal with the question of how any risk premium might be estimated or other factors identified.

We also consider that the ability of management to forecast cash flows will generally be a factor to be included, but not always so. Where there has been a major change of management for instance, then past ability may not be relevant to the future.

Question 4 � Allocating goodwill to cash-generating units

We agree with the ED�s proposals.

Question 5 � Determining whether goodwill is impaired

We do not agree with the implied value measurement basis for goodwill impairment in paragraph 85. We regard this as increasing the complexity of the proposals, while still allowing in many cases the purchased goodwill to be replaced with subsequent internally generated goodwill. We would prefer the screening mechanism from paragraph 85 to be used as the measurement basis. This would also have the advantage of treating indefinite-life intangibles in the same way as goodwill (see Question 2 above).

Question 6 � Reversals of impairment losses for goodwill

We agree that the reversal of goodwill impairment should not be allowed because purchased goodwill cannot be distinguished from subsequent internally generated goodwill. The same restriction should apply to purchased indefinite-life intangible assets.

Question 7 � Estimates used to measure recoverable amounts of cash-generating units containing goodwill or intangible assets with indefinite useful lives

We do not agree with the extent of the disclosures proposed. It appears that the intention is to allow users to replicate the impairment calculation. We do not think that this should be the principle applied in general to disclosures or in this case. To do so would expand significantly the level of information provided and make financial statements considerably longer, but arguably less understandable and usable. The reader of accounts is in danger of being swamped by detailed disclosures so that important information may be overlooked. We would limit the disclosures to paragraph 134 (a) to (d) and 137 (a) and (b). We note the contrasting level of disclosure requirements in paragraph 131 compared to paragraph 134.

We agree with the principle as proposed in paragraph 137, but once again have concerns about the very extensive disclosure requirements in paragraph 134 (e)
and (f).

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