What is the measurement period in IFRS 3 and how does it work?

Full Explanation

Under IFRS 3, the acquirer must complete the purchase price allocation by the end of the measurement period — a maximum of 12 months from the acquisition date. During this period, the acquirer may adjust provisional amounts recognised at the acquisition date if new information is obtained about facts and circumstances that existed at the acquisition date and would have affected the amounts recognised. The measurement period exists because not all information needed to finalise a PPA is available on the acquisition date. Common reasons for provisional amounts include: incomplete customer data for customer relationship valuations, pending IP assessments, outstanding tax positions, and earn-out valuations requiring further analysis. When measurement period adjustments are made, they are recognised as if the accounting had been completed at the acquisition date — meaning comparative period financial statements must be retrospectively adjusted. This differs from post-measurement-period adjustments, which are recognised prospectively in the period in which they occur. Key rules for measurement period adjustments include: they must relate to facts and circumstances that existed at the acquisition date (not subsequent developments), they must be based on information that the acquirer did not have at the acquisition date but subsequently obtained, the acquirer must determine whether the information would have affected the recognised amounts, and adjustments must be made within the 12-month window. Companies should use the measurement period strategically — beginning the PPA process early (ideally before completion) to maximise the time available for thorough analysis, while using provisional amounts as a safety net for areas requiring additional data.

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