Your characterization of goodwill accounting under International Financial Reporting Standards (IFRS) merits a precise examination, particularly regarding its historical evolution and any recent developments. I will address your points sequentially, drawing on authoritative sources to ensure accuracy. ### Historical Context: From Amortization to Impairment-Only Prior to 2004, goodwill was indeed subject to systematic amortization under IAS 22 *Business Combinations* (revised in 1998), typically over a period not exceeding 20 years, reflecting an assumption of a finite useful life. This approach aimed to allocate the cost of goodwill over its presumed economic benefit period. However, it faced criticism for being arbitrary—useful lives were often estimated subjectively, leading to inconsistent financial reporting and potential earnings management. In response to these concerns, the International Accounting Standards Board (IASB) issued IFRS 3 *Business Combinations* in March 2004 (effective for combinations after 31 March 2004), which eliminated mandatory amortization and introduced an impairment-only model. Under this regime, goodwill is treated as an indefinite-lived asset and subjected to annual impairment testing (or more frequent if indicators exist) per IAS 36 *Impairment of Assets*. The rationale was that goodwill often embodies synergies and other unidentifiable benefits without a reliably estimable finite life, making amortization less faithful to economic reality. This shift aligned IFRS more closely with U.S. GAAP (which adopted a similar model via SFAS 142 in 2001) and was not a "recent addition" but a foundational change two decades ago. The impairment test requires comparing the carrying amount of the cash-generating unit (CGU) to which goodwill is allocated against its recoverable amount (the higher of fair value less costs of disposal or value in use). If the recoverable amount is lower, an impairment loss is recognized, reducing goodwill to reflect diminished future economic benefits. This is grounded in verifiable inputs, such as discounted cash flow projections or market-based valuations, rather than unsubstantiated "potential." While subjective elements exist (e.g., growth assumptions), they are subject to audit scrutiny and disclosure requirements to mitigate opportunism. ### Recent Developments and Criticisms Debates over the impairment model's effectiveness persist, with critics arguing it is costly, complex, and prone to delayed recognition of losses—often due to optimistic recoverable amount estimates. In light of this, the IASB revisited the topic in its 2018 post-implementation review of IFRS 3. A key discussion paper in 2020 explored reintroducing amortization, but after extensive consultation, the IASB decided in March 2023 to retain the impairment-only approach, citing conceptual superiority for capturing goodwill's indefinite nature, while proposing enhanced disclosures to improve transparency. As of November 2025, the most notable recent activity is the IASB's Exposure Draft *Business Combinations—Disclosures, Goodwill and Impairment* (published 14 March 2024), which proposes targeted amendments to IFRS 3 and IAS 36. These include: - Expanded disclosures on acquisition-related information (e.g., synergies and risk factors) to aid investor assessment. - Refinements to the IAS 36 impairment test, such as allocating goodwill to more specific CGUs and requiring sensitivity analyses for key assumptions. Comments on the draft closed in July 2024, and the IASB has been redeliberating feedback through 2025, but no final amendments have been issued to date. Thus, the core impairment-only model remains unchanged, with no reversion to amortization. ### Application to Private Entities and Your Acquisition Scenario For private entities, the *IFRS for SMEs* standard (updated in 2015 and amended periodically) offers an accounting policy choice: amortize goodwill over its useful life (presumed maximum of 10 years if not reliably estimable) or apply the full IFRS 3/IAS 36 impairment model. This flexibility acknowledges the lower user demands for private company reporting, potentially allowing simpler (though not "secret") practices. However, even under amortization, annual impairment reviews are required if impairment indicators arise, and financial statements must still comply with fair presentation principles. Allegations of unchecked discretion are overstated, as external audits and regulatory oversight apply where mandated. Regarding your described scenario—acquiring Company A at a premium to create goodwill as an "asset" to offset the economic loss—this aligns with the standard recognition process under IFRS 3. The excess of the consideration transferred over the fair value of identifiable net assets is indeed capitalized as goodwill, reflecting synergies or control premiums rather than a "loss." An honest post-acquisition impairment assessment would not arbitrarily deem the full purchase price as the asset's value but would evaluate the CGU's recoverable amount based on forward-looking, market-supported evidence. Overly optimistic valuations risk regulatory challenge (e.g., via the IASB's proposed sensitivity disclosures) and could trigger enforcement actions by bodies like the Financial Reporting Council. In essence, while the impairment model is not without flaws, it represents a deliberate evolution from amortization, driven by conceptual rigor rather than recent capitulation to criticism. The 2024 Exposure Draft signals ongoing refinement toward greater accountability. Should you have specific examples or wish to model an impairment calculation, I would be glad to assist further.