Goodwill Impairment Testing Under IFRS
Factors for a Cash-Flow-Based Measure
In February 2013, the IASB discussed different measurement bases and when they might be appropriate. At that meeting, the IASB focused on cost and fair value. At the March 2013 meeting, the IASB discussed measurements other than cost or fair value.
The IASB tentatively agreed that the Conceptual Framework Discussion Paper should include a discussion of the factors that should be considered in constructing a cash-flow-based measure. The IASB suggested the following questions that would need to be addressed in constructing a cash-flow-based measure:
Should cash-flow-based measures reflect the uncertainties in the amount and timing of cash flows, or a single possible amount?
Should measures of liabilities reflect the possibility that an entity may not be able to settle its liabilities when they are due (the entity’s own credit)?
Should cash-flow-based measures be discounted and if so, at what rate or rates?
Should cash-flow-based measures reflect the amount that market participants would charge for bearing the risk embodied in uncertain cash flows?
Should cash-flow-based measures reflect the effects of other factors such as illiquidity premiums or discounts if they are identifiable?
Should the estimates and assumptions underlying cash-flow-based measures reflect the reporting entity’s perspective or market participants’ perspectives?
Should all of the above estimates be updated at each reporting date or should some or all of them be locked in (i.e. not updated)?
The IASB noted that, when addressing these questions, it would need to consider whether the benefits associated with a particular approach to measurement would be justified by the costs of providing that information.
IASB February Update (PDF)