Managing the subsequent measurement of a purchase price allocation (PPA) can be a daunting task, and one that is often underestimated by controllers. Let’s take a scenario where your company acquired a business with factories in four different countries. You went through an elaborate process of completing a PPA, and at the end of it, you have a long report with a listing of assets, their fair value, and remaining useful life for say 600 assets in one location. So far, so good.
But now, let’s fast forward to the year-end. Your team member who handled the PPA has quit, and you can’t find the Excel attachment that was supposed to be with the PPA report. Even if you do find it, you now have to manually depreciate the fair value adjustments over the remaining useful life. And if certain assets are depreciated using the diminishing value method, things can get even more complicated.
Why does this happen? Simply put, your ERP is not be configured to handle fair value adjustments arising from a business combination. And if we fast forward another year, the auditors may find serious discrepancies, such as disposed assets still carrying the fair value allocation, incorrect computations, or changes in tax rates that were not accounted for. These errors can be material and may even require discussions on restatement.
Another added problem is that most companies don’t pick up on these issues earlier because budgets and forecasts don’t usually consider fair value adjustments . And if for some reason, you need to book an impairment, things can get even more complicated as you’ll need to allocate the impairment losses and recompute depreciation rates.
At FINAHQ, we’ve experienced these challenges firsthand as controllers and consultants. That’s why we’ve created an asset register to help you automatically amortize and depreciate your fair value adjustments, with added functionality to book impairment losses at the individual asset line-item level and remove fair value adjustments for assets sold. Contact us to learn more about how we can help you manage your PPA and fair value adjustments with ease.
#PPA #BC #IFRS3 #Fairvaluation