What Is Acquisition Accounting

What is 'Procurement Accounting'
Acquisition accounting is a set of formal guidelines that describe how a purchasing company must report the assets, liabilities, non-controlling interests, and goodwill of a target company on its Consolidated Statement of Financial Position. In acquisition accounting, the fair market value of the acquired company is distributed among the net part of tangible and intangible assets of the acquiring company's balance sheet; the difference is considered goodwill. Also called "business combination accounting."

BREAKDOWN 'Acquisition Accounting'
International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) require that all business combinations be treated as acquisitions for accounting purposes, which means that a company must be identified as an acquirer and a company must be identified as an acquired even if the transaction creates a new company. In the past, a method called "purchase accounting" was used in business combination accounting, but standard changes made acquisition accounting the only acceptable method because it reinforced the concept of fair value. Acquisition accounting focuses on the prevailing market values ​​in a transaction and includes contingencies and minority interests, which were not accounted for under the purchase method.

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