The measurement period and provisional amounts

• Explain when the acquirer may report provisional amounts
• Separate measurement-period adjustments from post-acquisition events
• Record an adjustment and its catch-up effect in the current period under ASU 2015-16
• List the disclosures required while the accounting is incomplete

Why the period exists

A large acquisition rarely closes with every valuation finished. 805-10-25-13 lets the acquirer report provisional amounts for items whose accounting is incomplete at the end of the reporting period in which the combination occurs. The acquirer then adjusts those amounts during the measurement period as it obtains information it was seeking.

The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed at the acquisition date, or learns that more information is not obtainable. It cannot exceed one year from the acquisition date (805-10-25-14).

What qualifies

A measurement-period adjustment reflects new information about facts and circumstances that existed at the acquisition date and, if known, would have affected the amounts recognized. Typical examples:

• the final appraisal of property or intangible assets
• a working capital true-up computed from closing-date balances
• a better estimate of a lawsuit or warranty liability that existed at closing
• deferred taxes recomputed once the opening tax basis is settled

Information about events after the acquisition date is not a measurement-period adjustment. If a customer acquired in the deal goes bankrupt four months later, the loss belongs in post-combination earnings. 805-10-30-2 and 30-3 ask the acquirer to weigh all pertinent factors, and information obtained shortly after the acquisition date is more likely to reflect conditions at that date than information obtained months later.

Changes in contingent consideration that result from events after the acquisition date, such as meeting an earnings target, are also not measurement-period adjustments. They are covered in the contingent consideration lesson.

How ASU 2015-16 records the adjustment

Before ASU 2015-16, the acquirer revised comparative periods retrospectively. ASU 2015-16 removed that requirement. Under 805-10-25-17 and 805-20-50-4A:

1. Recognize the adjustment to the provisional amount, with the offset to goodwill, in the reporting period in which the adjustment amount is determined.
2. Record in that same period the effect on earnings of changes in depreciation, amortization or other income effects, calculated as if the accounting had been completed at the acquisition date.
3. Present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous periods.

No prior-period statements are revised. An increase in an identified asset generally decreases goodwill, and an increase in a liability generally increases goodwill.

Errors are different

A measurement-period adjustment is not a correction of an error. If the provisional amount was wrong because information that existed and was available at the time was misused or ignored, Topic 250 applies instead. A memo that labels a known misstatement as a measurement-period adjustment to avoid restatement will not survive review.

Disclosures while open

805-20-50-4A requires the acquirer to disclose, for each material combination whose accounting is incomplete: the reasons the initial accounting is incomplete, the assets, liabilities, equity interests or items of consideration for which the accounting is incomplete, and the nature and amount of measurement-period adjustments recognized during the period, including the catch-up amounts.

Practical steps

Keep a schedule of every provisional item, the information still outstanding and the expected date. Close each one before the one-year mark. The intangible assets rollforward workbook can carry the revised amortization so the catch-up effect is visible.

Final valuation of a customer relationship after year end