Skip to main content

Accounting Standards for Private Enterprises

Subsequent Measurement of Goodwill and Acquired Intangible Assets

Summary

The Accounting Standards Board (AcSB) was made aware of challenges faced by private enterprises with respect to the recognition of intangible assets and subsequent measurement of goodwill. More specifically, preparers have mentioned the cost and complexity of:

  • estimating the fair value of certain intangible assets acquired in a business combination; and
  • carrying out the goodwill impairment tests.

In addition, the Board has received feedback that goodwill and quantitative information about some intangible assets may not be decision-useful for financial statement users of private enterprises and not-for-profit organizations.

We have decided to undertake a project to better understand how the following considerations affect private enterprises and not-for-profit organizations:

  • the current challenges with the recognition of intangible assets acquired in a business combination and the subsequent measurement of goodwill
  • the information needs of financial statement users

As part of this project, we will also explore whether to propose relief from the recognition of intangible assets acquired in a business combination and whether we should propose a change to allow entities to amortize goodwill.

Staff Contact(s)

Dominique Hamel, MSc, CPA Principal, Accounting Standards

Jayshal Rajendra Daya, CPA, CA Principal, Accounting Standards Board

Project Status

  • Information gathering

    The AcSB undertook research to better understand the current challenges with the recognition of intangible assets acquired in a business combination and the subsequent measurement of goodwill

  • Approving project

    In March 2024, the AcSB approved a project to develop an exposure draft

  • Engaging Communities

    The AcSB is conducting public outreach to inform exposure draft proposals

    The AcSB is developing proposals to include in an exposure draft

  • Deliberating feedback
  • Final pronouncement

Webinar – Domestic Accounting Standards Update (Spring 2024)

Watch our recorded webinar to learn about current projects and recent amendments in Parts II, III, and IV of the CPA Canada Handbook – Accounting.

Meeting & event summaries


December 3, 2024

Private Enterprise Advisory Committee Notes – November 13, 2024

The Private Enterprise Advisory Committee received an update on the AcSB’s tentative decisions related to its Subsequent Measurement of Goodwill and Acquired Intangible Assets project. The exposure draft proposals will offer an option to amortize goodwill as well as relief from recognizing intangible assets acquired in a business combination (relief) in Part II of the Handbook.

The Committee discussed transition guidance. Most Committee members agreed with staff’s recommendation that the policy choice to amortize goodwill should be applied retrospectively to the goodwill balance at transition, and that a “catch-up” adjustment of goodwill amortization be applied from the original recognition date using a default 5-year amortization period, unless the entity can demonstrate that another useful life not exceeding 10 years is more appropriate. Most Committee members also agreed that the policy choice to elect the relief be applied retrospectively at transition to all past business combinations and that earlier application of both proposals be allowed.

The Committee also discussed changes in accounting policy. The Committee supported the AcSB’s tentative decision that the relief and the goodwill amortization accounting policies be applied consistently to all business combinations and not on a transaction-by-transaction basis. The Committee agreed that an exception in paragraph 1506.09 of Section 1506, Accounting Changes, should be provided for both the relief and the amortization of goodwill, so that an entity could change its accounting policy even if it doesn’t meet the more reliable or relevant information criterion. The Committee also agreed with staff’s proposal that a change in accounting policy should be accounted for on a modified retrospective basis.

Finally, the Committee discussed subsequent sales of acquired intangible assets. Committee members noted that, based on their experience, subsequent sales of intangible assets acquired through business combinations are not common in practice.

The AcSB will consider input from the Committee at its meeting on November 26-27, 2024.

January 23, 2024

AcSB Decision Summary – January 23, 2024

The AcSB discussed research findings and feedback from its Not-for-Profit Advisory Committee, Private Enterprise Advisory Committee and Small Practitioners Working Group on the challenges related to the subsequent measurement of goodwill and the recognition of intangible assets acquired in a business combination. The Board also discussed a potential standard-setting project that would allow private enterprises to amortize goodwill and offer relief from the recognition of intangible assets acquired in a business combination.

The AcSB agreed that the project should address both the subsequent measurement of goodwill and the relief from recognition of acquired intangible assets. The Board also determined that this project should consider the implications for entities applying both Parts II and III of the CPA Canada Handbook – Accounting. The Board highlighted the need to conduct more public outreach before issuing an exposure draft.

The AcSB will discuss a project proposal at its March 2024 meeting.

December 7, 2023

Private Enterprise Advisory Committee Notes – November 8, 2023

The Private Enterprise Advisory Committee discussed challenges related to the subsequent measurement of goodwill and recognition of intangible assets acquired in business combinations. The Committee also explored the idea of allowing private enterprises to amortize goodwill and offering relief from the recognition of intangible assets acquired in a business combination.

The Committee expressed concerns about the cost and complexity of goodwill impairment tests. Many Committee members indicated that goodwill often lacks information usefulness for financial statement users like creditors and lenders as banks typically do not factor in goodwill for lending decisions. Therefore, most Committee members supported reintroducing goodwill amortization but as an accounting policy choice.

Most Committee members preferred not separately recognizing some or all intangibles acquired in business combinations, provided goodwill is amortized. They noted that separately valuing intangibles upon acquisition is costly and of limited value to most private enterprise financial statement users because lenders rarely consider intangibles as security and often do not differentiate between goodwill and other intangibles.

Some Committee members suggested qualitative disclosure for separately identifiable intangibles in a business combination, particularly those that can be sold or licensed independently from other assets.

In January 2024, the AcSB will discuss the Committee’s feedback as part of the Board’s ongoing research. The Board will also consider the input from the Small Practitioners Working Group and the Not-for-Profit Advisory Committee then decide whether to advance to the project-proposal stage.

Disclaimer

This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal voting process.