When does the acquirer retrospectively adjust for information obtained?

The acquirer retrospectively adjusts for information obtained during the measurement period if facts existed at the acquisition date because this approach ensures that the financial statements accurately reflect any relevant circumstances that were not fully understood or appreciated at the time of the acquisition. The measurement period typically lasts up to one year from the acquisition date, allowing the acquirer to refine estimates and recognize changes that relate to conditions that were in existence at the time of the acquisition.

This retrospective adjustment is in line with the accounting standards, such as ASC 805 under GAAP, which stipulates that if new information is relevant to conditions that existed at the acquisition date, the acquirer must adjust the valuation accordingly. This process is essential for providing an accurate depiction of the acquired business’s fair value and ensuring that the financial reporting reflects the true economic situation of the merger or acquisition.

In contrast, adjustments solely based on future projections may not be valid, as they do not pertain to information that existed at the time of the acquisition, which is fundamental for establishing a fair value. Timing adjustments post the one-year period or making them arbitrarily whenever beneficial does not comply with the accounting principles governing business combinations.