US GAAP vs. IFRS in M&A Accounting: Understanding Key Differences and Financial Statement Impact

SeatonHill Partners
Oct 28
4 min read

by CFO, Rudy Leemans

Mergers and acquisitions are among the most complex transactions in corporate finance, often reshaping entire industries. For accountants, the challenge lies not only in valuing the acquired business but also in ensuring the transaction is presented fairly in financial statements. While both the US Generally Accepted Accounting Principles and the International Financial Reporting Standards require the purchase method, or acquisition method, for business combinations, the detailed rules diverge in ways that significantly affect reported earnings, balance sheet composition, and investor perceptions. For executives and investors navigating M&A, understanding these distinctions is critical for interpreting post-deal performance and making informed decisions.

Identifying the Acquirer

Both frameworks require identifying which party gains control, but differ in their definition.

Under US GAAP, the party that gets more than 50% of the voting rights is considered the acquirer.
IFRS takes a bit more of a substance-over-form approach; even if an entity doesn’t technically have 50% of the voting rights, they may still be deemed the acquirer because they have a controlling interest.

Recognition of Acquired Assets & Liabilities

Both frameworks require recognition of the acquiree’s assets and liabilities at fair value on the acquisition date.

US GAAP is rules-based and more prescriptive, often specifying how to measure certain asset classes, like contingencies, deferred tax, and even certain intangible assets such as customer relationships/client lists.
IFRS still requires fair value measurement but is principle-based and allows more judgment, particularly for uncertain future obligations and provisions.

Impact: Under IFRS, acquirers may recognize liabilities sooner than under GAAP, affecting post-deal expenses and profit margins.

Goodwill & Bargain Purchases

US GAAP: Any excess purchase price over fair value of net assets is recognized as goodwill.
IFRS: Similar goodwill treatment, but bargain purchases are recognized directly in profit or loss after reassessment of fair values.

Impact: Both inflate the balance sheet through goodwill, but bargain purchase gains may be more prevalent under IFRS, resulting in less intangible asset recognition than US GAAP, and more goodwill goes on the balance sheet.

Treatment of Acquisition Costs

US GAAP: Direct transaction costs are expensed immediately, and costs related to issuing equity or debt are capitalized.
IFRS: Similar expensing rule, but with less detailed guidance, and equity issuance costs are directly booked to Equity, not as a deduction or negative value as in US GAAP.

Impact: Neither framework permits capitalization of deal fees, leading to front-loaded expenses.

Contingent Consideration

US GAAP: Recorded at fair value on day one, subsequent changes are recognized in earnings.
IFRS: Also fair value at inception, but subsequent changes may run through profit/loss or equity, depending on the timing.

Impact: GAAP income statements may be more volatile; IFRS allows more flexibility.

Non-Controlling Interests

US GAAP: Requires NCI to be measured at fair value or the proportionate share of net assets.
IFRS: Provides the same choice, fair value, or proportionate share of net assets (partial goodwill), but requires a choice of one method for each business combination, which has to be disclosed.

Impact: IFRS often leads to lower goodwill, higher post-acquisition ROE, and post-acquisition profits and impairments looking different depending on the chosen method.

Intangible Assets Recognition

US GAAP: More prescriptive, leading to broader recognition of intangibles.
IFRS: Requires recognition only if future economic benefits are probable and measurable.

Impact: GAAP acquirers often record more amortizable intangibles, affecting earnings.

Subsequent Testing: Goodwill Impairment

US GAAP: Annual impairment test at the reporting unit level, no amortization.
IFRS: Annual impairment at cash-generating unit level, no amortization.
Note: under US GAAP, Asset Impairment is final. Under IFRS, reversal of Asset Impairment is allowed.

Impact: IFRS may trigger impairments earlier, increasing volatility.

Step Acquisitions & Loss of Control

US GAAP: Step acquisitions remeasure previously held equity interests at fair value, gains/losses in earnings.
IFRS: Very similar, though IFRS emphasizes revaluation through profit or loss.

Impact: Both create earnings swings, but IFRS may accelerate recognition.

Broader Financial Statement Implications

GAAP often results in higher volatility from contingent consideration revaluations and more intangible amortization.
IFRS tends to produce smoother results, though impairments can cause large one-time hits.
The IFRS partial goodwill option and narrower intangible recognition yield leaner balance sheets, while GAAP shows larger goodwill.

Rudy Leemans is a CFO Partner on the Midwest team of Seaton Hill. He is a versatile

international corporate finance executive successful at building solid business practices

while driving economic stability, growth, and revenue. Rudy has demonstrated success

in leading finance teams, leveraging his dynamic leadership skills and diverse industry

knowledge. He is exceptionally adept at working with all levels of internal and external

management to ensure corporate and client buy-in. Rudy also has a keen ability to oversee multiple complex initiatives while mastering deadlines and budget expectations.

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