Acquisition Accounting 2025: Key Updates for Australian Businesses

Acquisition accounting has always been a critical process for Australian businesses navigating mergers, takeovers, and other corporate combinations. In 2025, sweeping regulatory updates and a renewed focus on transparency are reshaping how companies record and report acquisitions. Whether you’re a CFO at a listed company or an accountant advising on mid-market deals, understanding the latest requirements is essential for compliance and shareholder trust.

What Is Acquisition Accounting and Why Does It Matter?

At its core, acquisition accounting (sometimes called purchase price allocation) is the method used to consolidate the financials of an acquired business with the acquirer’s books. Under the Australian Accounting Standards Board (AASB) and International Financial Reporting Standards (IFRS), the acquirer must:

• Identify and value all assets and liabilities of the acquired entity at fair value

• Recognise intangible assets (including customer relationships, patents, and brand value)

• Calculate goodwill as the excess of the purchase price over the net fair value of identifiable assets and liabilities

This process is more than a compliance exercise—it directly affects reported profits, future amortisation expenses, and even the company’s share price. For example, in late 2024, a high-profile ASX-listed merger saw shares drop after a large goodwill write-off, highlighting how acquisition accounting outcomes can rattle investors.

2025 Regulatory Updates: What’s Changed?

This year, the AASB has rolled out several amendments aligning with the latest IFRS 3 changes and clarifying the treatment of contingent liabilities, employee benefit obligations, and digital assets acquired in business combinations. Key updates include:

• Stricter Intangible Asset Recognition: Digital assets such as software IP and data sets must now be individually assessed and valued, not lumped into goodwill.

• Enhanced Disclosure Requirements: Companies must provide more granular breakdowns of purchase price allocations, including methodologies and key assumptions used in fair value assessments.

• Revised Contingent Consideration Rules: Contingent payments linked to future performance (earn-outs) must be measured at fair value on acquisition date, with subsequent changes hitting P&L—not just balance sheet reserves.

For example, if a tech startup acquisition includes a $10 million earn-out based on user growth, that liability must be recognised upfront, not deferred. These rules aim to stamp out aggressive accounting and ensure a true-and-fair view for investors and regulators.

Practical Steps for a Smooth Acquisition Accounting Process

With the bar raised in 2025, Australian businesses need a robust approach to acquisition accounting. Here’s what works in practice:

• Early Engagement with Valuation Experts: Don’t leave asset identification and valuation to the last minute. Engage independent experts to assess tangible and intangible assets—especially with new digital asset requirements.

• Scenario Analysis for Contingent Considerations: Model multiple performance outcomes for earn-outs and contingent liabilities to avoid nasty P&L surprises down the track.

• Integrated Due Diligence: Align financial, tax, and legal due diligence teams early to identify hidden liabilities or overlooked assets, such as pending litigation or unregistered IP.

• Transparent Communication: Use clear, investor-friendly language in financial statements and ASX releases to explain significant accounting judgments and their impacts.

One notable example from 2025: a Queensland-based energy company acquired a renewables startup, carefully separating software IP and carbon credit assets in the purchase price allocation. Their clear disclosure and proactive investor briefing were credited with avoiding post-deal share volatility.

The Road Ahead: Challenges and Opportunities

Acquisition accounting will remain in the spotlight as M&A activity rebounds and regulators tighten oversight. Australian businesses face challenges in valuing rapidly evolving assets (like AI-driven IP or crypto holdings) and meeting heightened disclosure standards. But with disciplined processes and transparent reporting, acquisition accounting can be a tool for building market confidence—not just ticking a compliance box.