Last update 31/07/2019
IFRS 3 Definition: The date on which the acquirer obtains control of the acquiree.
The second step in applying the acquisition method, subsequent to identifying the acquirer, is to determine the acquisition date. Simply put, the acquisition date is the date on which the acquirer obtains control of the acquiree. In general, the date on which the acquirer obtains control of the acquiree is the date on which the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree. In other words, this is generally considered the closing date of the transaction.
For example, if control is obtained by contract, the acquisition date would be the date the contract is executed or, if control is obtained by an investor as a result of an investee share buy-back, the acquisition date is the date the investor obtains a majority voting interest.
However, there may be certain instances whereby control is obtained either earlier or later than the closing date of the transaction. As a result, there may be situations when the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree before the actual closing date. Given the variability in business combination transactions across one entity to the next, entity should always consider all the relevant facts and circumstances when concluding on the acquisition date.
Obtaining control before the actual closing date
This is the not-normal situation, in most cases an acquirer will favour accounting for obtaining control in a business combination at an earlier date, so users of financial statements are focussed on the supposed fact of obtaining control before the actual closing date.
In the market it is assumed that the acquisition date can precede the closing date only if a written agreement is in place as of the designated date that provides for transfer of control of the acquired entity to the acquirer on that date.
The written agreement should provide the acquirer with the ability to make decisions about the operations and financing of the acquired entity without impediment. That is, the selling shareholders should not have continuing rights, as it relates to the operation of the target, other than protective rights or blocking actions. If the acquisition date occurs prior to the consummation date, a liability is recognized, at fair value, for the consideration to be transferred to the selling shareholders. That liability is accreted to the date that the consideration is transferred to an amount equal to the consideration transferred.
If the business combination requires regulatory or shareholder approval (or shareholder approval is sought) by either the acquirer or the acquiree, control transfers until such approval is obtained.
However, in the case of shareholder approval and after considering all the relevant facts, if management and the board of directors control sufficient votes to approve the transaction, and thus shareholder approval is considered perfunctory, a transfer of control might be deemed to occur prior to the date of shareholder approval and prior to the closing date, but only if a written agreement as described above exists.
