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Entity A had acquired business from Entity B for a total consideration of USD 10 million during Financial year ended 31 March 2020.Entity A accounted assets and liabilities acquired at Fair values and paid total consideration of USD 9 million. USD 1 million is kept on hold for certain reconciliations.
During March 2023, Entity A realized that USD 1 million is no longer required to be paid to Entity B.

Can Entity A reverse USD 1 million as it is no longer required to be paid and credit into Income Statement or is USD 1 mn required to be adjusted to carrying fair value of assets acquired ?
What is the treatment to be applied either as per IFRS 3 or IAS 32 ?

It's 3 years later so if A had considered the $1m was payable, it is assessed that the fair value of that contingent consideration was $1m at the time, then reverse through P&L.

Or was it an error to record the $1m as a liability in the first place based on information at the time?

The company did not specifically assess on the held back amounts specifically as contingent consideration ( as it is not material or not significant). USD 1 mn is recorded along with regular consideration as payable.

write back through P&L, effectively as a change in measurement of contingent consideration

Why is this part of the consideration no longer deemed payable?