IFRS3 - Measurement period

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Leo
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IFRS3 - Measurement period

Post by Leo »

Hi guys,

How should I interpret the measurement period of 1 year in IFRS3?

If a purchase agreement was signed on 01/02/2020 (acquisition date) and the company close its financials on 31/12/2020.

Hypothesis 1:

On 15/03/2021, I've received information about some new intangible assets unidentified at the moment of the acquisition, the financials of FY20 are still in production :

A: Modify the financials of FY20 right away
B: Can't modify the financials of FY20 because the measurement period is expired on 31/01/2021.

Hypothesis 2:

On 15/03/2021, I've received information about some new intangible assets unidentified at the moment of the acquisition, the financials of FY20 are closed and audited :

A: Modify the financials of the comparative year FY20 when I'll produce the financials of FY21.
B: Can't modify the financials of FY20 even when I'll produce the financials of FY21 because the measurement period is expired on 31/01/2021.

Does the measurement period means :

A: The period in which informations that could modify the purchase allocation are available?
B: The period in which I can book an adjustment entry?


Thank you!
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exIFRS
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Re: IFRS3 - Measurement period

Post by exIFRS »

I have to confess to being a little lost in your hypotheses, but the measurement period ended on the 31/01/2021. As you can see from the quote below the period relates to when the information is received. That being said, I would be tempted to find evidence that we knew about this before the end of the year, because otherwise, if material, you need to treat it as an error in accordance with IAS 8. It would seem odd to stumble across some intangible assets tucked away in a cupboard more than a year after acquisition and this may suggest poor management and due diligence.
IFRS3.45 (emphasis added): "...The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the acquisition date."
The standard defines the measurement period as (IFRS3.46) "the period after the acquisition date during which the acquirer may adjust the provisional amounts recognised for a business combination." To me it is the period in which you can adjust the goodwill or gain on bargain purchase (and balancing assets/liabilities).

So in your scenario, if we decided we knew about it at the end of the year, we prepare the financial statements as though we always knew the information and everything is easy.

Edit: Now I think about it, it is probably an IAS10 adjusting post-balance date event? So you could just wind it back 31/12?
Last edited by exIFRS on 16 Mar 2021, 09:54, edited 1 time in total.
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exIFRS
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Re: IFRS3 - Measurement period

Post by exIFRS »

Where it gets interesting is if instead your year end was say 30 June, you have prepared your 30 June 2020 accounts and then you find the cupboard these intangibles are hiding in later in the year.

Note that IFRS3.B67 comes into play:
To meet the objective in paragraph 61, the acquirer shall disclose the following information for each material business combination or in the
aggregate for individually immaterial business combinations that are material collectively:
(a) if the initial accounting for a business combination is incomplete (see paragraph 45) for particular assets, liabilities, non-controlling interests or items of consideration and the amounts recognised in the financial statements for the business combination thus have been determined only provisionally:
(i) the reasons why the initial accounting for the business combination is incomplete; the assets, liabilities, equity interests or items of consideration for which the initial accounting is incomplete; and
(iii) the nature and amount of any measurement period adjustments recognised during the reporting period in accordance with paragraph 49.
In your 30 June 2021 financial statements you make retrospective adjustments to the prior period information. This may mean
  • Increasing Intangible assets
    Increasing amortisation
    Decreasing goodwill
You would disclose in your 2020 accounts that the valuation was based on initial accounting for a bus comb but it was not yet complete.
In your 2021 accounts you disclose the new amounts and explanations of the adjustments to the provisional values, and present adjusted comparative information.

So what's different to an error you might ask, well, you don't have to call it an error, you don't have to notify anyone you made an error, and your auditor is much happier.
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exIFRS
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Re: IFRS3 - Measurement period

Post by exIFRS »

Final note the BC to IFRS 3 (BC392) states:
The boards decided to place constraints on the period for which it is deemed reasonable to be seeking information necessary to complete the accounting for a business combination. The measurement period ends as soon as the acquirer receives the necessary information about facts and circumstances that existed as of the acquisition date or learns that the information is not obtainable. However, in no circumstances may the measurement period exceed one year from the acquisition date. The boards concluded that allowing a measurement period longer than one year would not be especially helpful; obtaining reliable information about circumstances and conditions that existed more than a year ago is likely to become more difficult as time passes. Of course, the outcome of some contingencies and similar matters may not be known within a year. But the objective of the measurement period is to provide time to obtain the information necessary to measure the fair value of the item as of the acquisition date. Determining the ultimate settlement amount of a contingency or other item is not necessary. Uncertainties about the timing and amount of future cash flows are part of the measure of the fair value of an asset or liability.
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Marek Muc
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Re: IFRS3 - Measurement period

Post by Marek Muc »

re 'Hypothesis 1': you can and should modify financials for FY20 until they are authorised for issue, you generally should include all items as at the reporting date, which includes assets etc acquired through business combinations. I guess it's redundant to identify the actual date when you 'discovered' your intangible as long as it happens before the authorisation of financial statements. IFRS don't really care about bookkeeping, theoretically (as far as IFRS are concerned) you can book all your entries on the day when you produce financial statements

re. 'Hypothesis 2' - if your financials for FY are authorised, and then you discover material assets and liabilities acquired which you did not recognise, then it is a retrospective correction of error under IAS 8
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exIFRS
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Re: IFRS3 - Measurement period

Post by exIFRS »

Yeah, funny when you read it quickly you can miss the key bit, my eyes just skipped over the open vs closed difference. I agree that the application is as you outline for each hypothesis.
Leo
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Re: IFRS3 - Measurement period

Post by Leo »

Thank you guys for your help !!!
JRSB
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Re: IFRS3 - Measurement period

Post by JRSB »

As exifrs wrote, when I read the scenario I was also sceptical about how that could happen. Presumably the thinking for the measurement period was a BC just before the year end followed by a fast turnaround reporting process. What factors meant it was discovered so much later (it may be that in reality it was an error in the acquisition accounting within the business?).
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