Accounting Alerts

Insights into PFRS 3 - Identifying the Acquisition Date

This Accounting Alert is issued to give insights on how to identify the acquisition date of a business combination under PFRS 3, Business Combination.

Acquisitions of businesses can take many forms and can have a fundamental impact of the acquirer’s operations, resources and strategies. These acquisitions are known as mergers or business combinations which should be accounted for using the requirements in PFRS 3, Business Combinations.

Our ‘Insights into PFRS 3’ series summarizes the key areas of PFRS 3, highlighting aspects that are more difficult to interpret and revisiting the most relevant features that could impact your business. This article discusses how to identify the date of acquisition or the date the business combination is effected.

How does PFRS 3 Define the Acquisition Date?

PFRS 3 defines the acquisition date as the date the acquirer obtains control of the acquiree. In a combination effected by a sale and purchase agreement, this is generally the specified closing or completion date (the date when the consideration is transferred and acquiree shares or underlying net assets are acquired).

The acquisition date is critical because it determines when the acquirer recognizes and measures the consideration transferred, the assets acquired, and liabilities assumed. The acquiree’s results are consolidated from this date. The acquisition date materially impacts the overall acquisition accounting, including post-combination earnings.

The acquisition date is often readily apparent from the structure of the business combination and the terms of the sale and purchase agreement (if applicable), but this is not always the case. Complications can arise because of the many ways, both contractual and noncontractual, that business combinations can be put together.

The Accounting Alert also provides examples of situations which require analysis and their relevant considerations when determining the date of when an acquisition of a business has taken place.