On March 14, 2024, the International Accounting Standards Board (the “IASB”) announced the Exposure Draft “Business Combinations – Disclosures, Goodwill and Impairment (“BCDGI”)” (the “Exposure Draft”). The IASB is to receive comment letters from stakeholders around the world on the Exposure Draft (comment period: July 15, 2024). While the Exposure Draft remains subject to change and steps remain before the accounting standards are amended, there have been media reports that developed nations such as the US and the EU are in support of the amendments.

The Exposure Draft is drawing attention from the market as it adds the following new disclosure requirements by a company: (i) information about key objectives and related targets for a strategic business combination, (ii) the extent to which those key objectives and related targets are met in subsequent periods, and (iii) quantitative information about expected synergies from a business combination, in addition to qualitative descriptions.

If the relevant accounting standards are amended based on the Exposure Draft, such amendments will also be reflected in K-IFRS. Key proposed amendments set out in the Exposure Draft are as follows:

Proposed Amendment to IFRS 3: Companies Are to Disclose Information About the Performance of Strategic Business Combinations Upon Review by Their Key Management Personnel
 

• In case of a strategic business combination (i.e., one for which failure to meet any one of the key objectives of an acquisition by an entity would put the entity at serious risk of failing to achieve its overall business strategy), the key objectives and related targets for the strategic business combination must be disclosed in the year in which the acquisition takes place. The extent to which those key objectives and related targets are met should also be disclosed in subsequent periods.

• For all material business combinations (including strategic business combinations), businesses must provide detailed quantitative information about expected synergies expected from the business combination, in addition to qualitative explanations.
   

Proposed Amendment to IAS 36: Provision of Additional Guidelines and Proposal for Simplifying the Calculation of Use Values
 

• Regarding the disclosure of goodwill, it requires disclosure of information about the relevant reporting segment so that users may assess whether the management’s cash flow assumptions are reasonable.
   

With regard to the above, the Korea Accounting Institute held a forum on June 12, 2024, to introduce the Exposure Draft and hear opinions of Korean stakeholders. During the discussions at the forum, there were positive views on the Exposure Draft that the proposed amendments would (i) address issues related to business combinations that undermine shareholder value and (ii) facilitate external monitoring and check-and-balance on the decision-making process of M&As. On the other hand, there were views that (i) subsequent disclosure of information on the results of strategic business combinations may burden companies’ overall M&A activities, (ii) auditing management’s assertions on synergies may be difficult due to the lack of a standardized method of measurement, (iii) it is difficult to maintain the reliability of information related to synergies, (iv) costs would be incurred due to the risk of litigation, insufficient disclosures, etc., and (v) there may be a regulatory overlap with disclosure requirements stipulated in the Financial Investment Services and Capital Markets Act.

Recently, Korea Exchange announced the “Guidelines on the Corporate Value-up Program (May 2024),” which also require businesses to disclose specific plans for enhancing their corporate value, such as the restructuring of their business, and to disclose the results of the implementation of such plans. Through the abovementioned proposed amendments to accounting standards, which also aim to improve information disclosed in M&As, companies engaged in M&As and business restructuring would be subject to heavier disclosure going forward. Companies should assess the above factors and carefully prepare for risks of disclosure-related liability such as unfaithful disclosure in the course of M&As.

[Korean Version]