3.2 Determining the Acquisition Date
ASC 805-10
25-6 The acquirer shall identify the acquisition date, which is the date on which it obtains control of the
acquiree.
25-7 The date on which the acquirer obtains control of the acquiree generally is the date on which the acquirer
legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree — the closing
date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date.
For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer
obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts
and circumstances in identifying the acquisition date.
The acquisition date is the date on which control of the business transfers to the acquirer and generally
coincides with the date on which the acquirer legally transfers the consideration to the seller, receives
the assets, and incurs or assumes the liabilities (i.e., the closing date).
Determining the acquisition date is important because on this date:
- All forms of consideration are measured, including contingent consideration, and the acquirer’s equity securities that are issued to the seller.
- The assets acquired, liabilities assumed, and any noncontrolling interests are identified and measured.
- The acquirer begins consolidating the acquiree, if required.
In unusual circumstances, the acquisition date can be before or after the
closing date. We believe that the acquisition date can precede the closing date only
if a written agreement is in place between the acquirer and the seller and that
agreement gives the acquirer control over the acquiree. Such a written agreement
must give the acquirer the ability to make all operating and financing decisions
related to the acquiree without the seller’s approval. That is, the seller should
not have any participation in the acquiree’s operations, other than having possible
protective rights. If the acquisition date occurs before the date on which the
consideration is transferred, the acquirer should recognize a liability for the
consideration to be transferred to the seller.
If the acquisition requires regulatory or shareholder approval, or shareholder
approval is sought by either the acquirer or acquiree, it is generally presumed that
control cannot pass to the acquirer until such approval is obtained. In rare
circumstances, shareholder approval may be considered perfunctory if management and
the board of directors control enough votes to approve the acquisition and a written
agreement exists evidencing their intent to approve the transaction. In such cases,
the acquisition date may occur before shareholder approval is obtained, provided
that control is transferred.
ASC 805 does not contain the “convenience” exception that was present in FASB
Statement 141. That exception allowed an acquirer, in certain circumstances, to
designate an effective date other than the acquisition date of the business
combination (e.g., the end of an accounting period between the dates on which a
business combination is initiated and consummated). In the Basis for Conclusions of
Statement 141(R), the FASB acknowledges that although there is no longer a
convenience-date exception, entities may still designate such a date if its effect
on the acquirer’s financial statements would be immaterial. Paragraph B110 of
Statement 141(R) states the following:
The Boards concluded that
the financial statement effects of eliminating that exception were rarely likely
to be material. For example, for convenience an entity might wish to designate
an acquisition date of the end (or the beginning) of a month, the date on which
it closes its books, rather than the actual acquisition date during the month.
Unless events between the “convenience” date and the actual acquisition date
result in material changes in the amounts recognized, that entity’s practice
would comply with the requirements of this Statement.