Establishing the Fair Value of Consideration Given In an Acquisition

Abstract

The impact of accounting standards on acquisitions has significant implications for the purchaser's reported financial position, reported profits and ability to pay dividendsreported profits and ability to pay dividends. Two major problems arise with respect to the bases used in assessing the fair value of offer consideration – the size of the control premium and the notional placement discount. These problems are exacerbated by the little‐noticed, but significant, change in measurement date (from offer date to acquisition date) in AASB 1015. Hence, further differences arise if the share price moves significantly between the offer date and the acquisition date. Current international accounting standards are being harmonised. However, they are inconsistent in their requirements as to whether takeover consideration should be assessed at acquisition date rather than offer date.