The ASC 805 measurement period is the window of up to one year from the acquisition date during which an acquirer can finalize the fair values of assets and liabilities picked up in a business combination. It exists because complex deals rarely produce clean numbers at closing: appraisals, tax analyses, and contingency reviews often arrive months later. During this window, the acquirer books provisional amounts, then refines them as information about acquisition-date conditions comes in.
How Long the Window Runs
The clock starts on the acquisition date, the day the acquirer obtains control of the target. From that date, the maximum is one year.1Deloitte Accounting Research Tool (DART). ASC 805-10 – Measurement Period The one-year cap runs continuously, without regard to fiscal year-end or reporting cycle.
The window often ends earlier. It closes as soon as the acquirer either receives the information it was seeking about facts and circumstances that existed on the acquisition date, or determines that further information cannot be obtained.1Deloitte Accounting Research Tool (DART). ASC 805-10 – Measurement Period A company that has all the data it needs six months in cannot keep the window open for convenience. This is a practical accommodation, not a planning tool.
What You Can Record Provisionally
If the accounting for an acquisition is incomplete at the end of the reporting period in which the deal closed, you report provisional amounts for the items still being finalized. Provisional treatment is permitted only where you can show that specific information was unavailable despite reasonable efforts to obtain it.
The items most often carried provisionally are the fair value of real property, identifiable intangible assets such as customer relationships or technology, deferred tax balances, and contingent liabilities from pending litigation. Each provisional amount must relate to facts and circumstances that existed as of the acquisition date.2Deloitte Accounting Research Tool. Disclosures Required When the Initial Accounting for the Business Combination Is Incomplete (Measurement-Period Adjustments) If a condition didn’t exist on the closing date, provisional treatment doesn’t apply, and any related amounts fall under different guidance.
How Adjustments Get Recorded
When new information changes a provisional amount, the adjustment lands in two places at once: the specific asset or liability moves to its updated fair value, and goodwill moves in the opposite direction by the same figure. If a final appraisal shows an acquired building is worth more than the provisional estimate, the building’s carrying value goes up and goodwill goes down by the same amount.1Deloitte Accounting Research Tool (DART). ASC 805-10 – Measurement Period The total purchase price allocation stays balanced.
Adjustments are recognized in the reporting period in which the amount is determined, not applied retrospectively to the acquisition date.3PwC Viewpoint. Business Combinations (Topic 805) – ASU 2015-16 Prior-period financial statements are not revised.
The Income Statement Catch-Up
Although the adjustment itself hits the current period, you cannot ignore what would have flowed through earlier periods. You must calculate the effect of the change on depreciation, amortization, or other income items as if the revised figure had been in place since the acquisition date, then record that cumulative amount in current-period earnings.4PwC Viewpoint. Measurement Period Adjustments If a revised intangible asset value increases amortization expense by $200,000 across the prior three quarters, the full $200,000 hits earnings in the quarter the adjustment is finalized. The income statement for earlier periods stays as originally reported.
New Information vs. Subsequent Events
Not every piece of post-closing data qualifies. The standard draws a sharp line between new information about acquisition-date conditions and events that occur after closing.
New information is data that existed at the acquisition date but wasn’t yet known or available. An acquirer closes a deal in March, then receives an environmental assessment in July revealing soil contamination that predated the acquisition. Because the contamination existed on the closing date, adjusting the liability is a valid measurement period change. A final inventory count that corrects a preliminary estimate, or a completed customer attrition analysis that refines a customer-relationship intangible, works the same way.
Subsequent events are different. A factory fire three months after closing, a lawsuit filed over post-acquisition conduct, or a new regulatory requirement enacted after the deal did not exist on the acquisition date. None of them can be handled through measurement period adjustments. They get recognized through other standards, such as ASC 450 for contingencies, in the period they occur.
This is where most measurement period disputes land. You need clear documentation of when information was first available, what it relates to, and why it reflects an acquisition-date condition rather than a post-closing development. Internal memos, third-party appraisal reports, and contemporaneous correspondence all serve as evidence that the adjustment traces back to the deal date. Without that paper trail, auditors and regulators will push back.
Contingent Consideration
Many deals include contingent consideration, where part of the purchase price depends on future events like hitting revenue targets or completing a development milestone. Treatment depends on timing and cause.
During the measurement period, if you learn something about facts and circumstances that existed on the acquisition date that changes the fair value of the contingent consideration, that change is a measurement period adjustment and runs through goodwill.5Deloitte Accounting Research Tool (DART). Contingent Consideration Changes in fair value caused by post-acquisition events, such as actually meeting or missing an earnings target, are recognized in current-period earnings, not as adjustments to goodwill.
After the measurement period, the accounting depends on classification. If the contingent consideration is classified as an asset or liability, it is remeasured to fair value at each reporting date, with changes flowing through earnings. If it is classified as equity, it is never remeasured: the initial amount stays fixed, and any settlement is handled within equity.5Deloitte Accounting Research Tool (DART). Contingent Consideration Getting classification right at the outset drives the accounting for the life of the arrangement.
Disclosures
If the acquisition accounting is incomplete at the end of any reporting period, you must disclose that fact, identify which assets, liabilities, or other items are still provisional, and explain why the initial accounting remains open.2Deloitte Accounting Research Tool. Disclosures Required When the Initial Accounting for the Business Combination Is Incomplete (Measurement-Period Adjustments)
When a measurement period adjustment is recorded, the disclosures expand. You describe the nature and amount of each adjustment, and separately present the portion of the current-period income statement amount that would have been recorded in previous reporting periods if the revised figures had been used from the acquisition date.3PwC Viewpoint. Business Combinations (Topic 805) – ASU 2015-16 Investors get visibility into how much of current earnings is a catch-up from prior periods.
SEC staff have specifically asked registrants to explain why particular adjustments qualify as measurement period changes rather than post-combination events, identify the specific items for which accounting remains incomplete, and state the reasons the purchase allocation hasn’t been finalized.6U.S. Securities and Exchange Commission. SEC Correspondence Filing (Ascena Retail Group, Inc.) Boilerplate disclosures invite scrutiny.
After the Window Closes
Once the one-year window expires or you confirm you have all obtainable information, acquisition accounting is final. Goodwill is no longer adjustable through the purchase price allocation and moves into the impairment testing framework, evaluated at least annually and whenever events suggest the carrying amount may exceed fair value. Impairment losses, once recognized, cannot be reversed.
Post-window changes that aren’t error corrections hit current-period earnings. A contingent liability provisionally estimated at $3 million that later settles for $5 million doesn’t change the original allocation. The $2 million difference lands on the income statement in the period the settlement occurs.
Error Corrections Are Different
After the window closes, the only remaining path to revising acquisition accounting is an error correction under ASC 250, which requires restating prior-period financial statements.1Deloitte Accounting Research Tool (DART). ASC 805-10 – Measurement Period The classification question is whether the correct information was reasonably knowable or readily accessible from the acquiree’s books and records during an earlier reporting period. If it was and the company should have caught it, that’s an error. A valuation assumption that was reasonable when made but later proves off isn’t necessarily an error. A data entry mistake in the original allocation, or a failure to account for a known liability, almost certainly is. Auditors watch this boundary closely, because misclassifying an error as a measurement period adjustment during the open window avoids restatement and can obscure reporting problems.
Tax Basis Doesn’t Move With GAAP
The measurement period is a GAAP concept with no direct parallel in federal tax law. Acquired intangibles, including goodwill, are generally amortized on a straight-line basis over 15 years under Section 197 of the Internal Revenue Code.7Office of the Law Revision Counsel. 26 U.S. Code 197 – Amortization of Goodwill and Certain Other Intangibles There is no statutory mechanism for retroactively adjusting the tax basis of acquired assets the way GAAP allows provisional amounts to be revised.
This creates book-tax differences you have to track. When a measurement period adjustment changes the GAAP carrying value of an intangible but not its tax basis, the deferred tax balance associated with that asset has to be updated. If the GAAP value of a customer-relationship intangible increases by $2 million and the tax basis stays flat, you now have a larger taxable temporary difference and need to record a corresponding deferred tax liability. Those cascading effects can move both the goodwill balance and the effective tax rate, and they’re easy to miss.
Keep supporting documentation, including appraisals, tax workpapers, legal assessments, and internal memos establishing when information became available, in a form that will survive future audits and regulatory inquiries. That record is the primary defense against both error-correction challenges and SEC questions about whether adjustments were properly classified.