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    How Does Purchase Price Accounting Work in a Cross-Border Acquisition?

    May 30, 2026

    In a cross-border acquisition, purchase price accounting (PPA) follows ASC 805 for a US GAAP acquirer or IFRS 3 for an IFRS acquirer. The acquirer recognises the target’s identifiable assets and liabilities at their acquisition-date fair values, subject to specified exceptions, and records goodwill as the residual. Cross-border deals add three complications that domestic deals do not have: the target’s books are kept under a different GAAP, the target reports in a different currency, and intangible assets that were never on the target’s balance sheet must be identified and valued.

    The practical sequence is to convert the target’s local GAAP balance sheet to the acquirer’s GAAP first, ideally as a desktop conversion during due diligence, then apply the fair value adjustments on top, and plan early for any SEC financial statements a US public acquirer will need to file. This guide covers each step.

    How purchase price accounting works under ASC 805 and IFRS 3

    • Fair value with exceptions. Identifiable assets acquired and liabilities assumed are measured at fair value at the acquisition date. Some items follow their own standards instead, including income taxes, employee benefits, leases where the target is the lessee, share-based payment awards and, under US GAAP, contract liabilities with customers.
    • Goodwill is the residual. Goodwill is the consideration transferred (plus any non-controlling interest) less the net identifiable assets recognised. The target’s own previously recognised goodwill is not carried over.
    • No goodwill amortisation for public companies. Under both US GAAP (ASC 350) and IFRS (IAS 36), goodwill is not amortised and is tested for impairment at least annually. US private companies may elect to amortise goodwill over 10 years or less under the private company alternative.
    • Non-controlling interests. Where the acquirer buys less than 100%, US GAAP measures the non-controlling interest at fair value. IFRS 3 allows fair value or the proportionate share of net identifiable assets, chosen for each acquisition, and the choice changes the amount of goodwill.
    • Acquisition costs. Advisory, legal and valuation fees are expensed as incurred under both frameworks, not added to the purchase price.

    The fair value exercise is the core of PPA, and it is where most of the work is.

    Convert the target’s local GAAP balance sheet before fair valuing

    The target’s statutory accounts are prepared under local GAAP. Before you apply fair value measurement, convert the opening balance sheet to US GAAP. ASC 805 only recognises items that meet the US GAAP definitions of assets and liabilities, several balances are measured under US GAAP standards rather than at fair value, and the acquirer’s US GAAP policies apply to the acquired business from the first day after closing. This is a prerequisite step that many acquirers underestimate.

    The best time to do this is during due diligence, as a desktop GAAP conversion. You need like-for-like financials before you can assess what you are buying. For the full case, see why GAAP conversion belongs in M&A due diligence.

    Areas to convert for a European target

    • Revenue and deferred revenue. European GAAP often recognises revenue on a different schedule from ASC 606, particularly for subscription and SaaS businesses. Under US GAAP, ASU 2021-08 requires acquired contract liabilities to be measured under ASC 606 as if the acquirer had originated the contracts (effective for public business entities for fiscal years beginning after 15 December 2022 and for all other entities after 15 December 2023). The target’s deferred revenue must therefore be restated to ASC 606 before it goes into the opening balance sheet.
    • Software and development costs. The target’s technology is valued as an intangible asset in the PPA, whether or not the target capitalised its development costs. The conversion matters for the accounting after closing. US GAAP expenses research and development (ASC 730) and capitalises software costs only under ASC 350-40 (internal-use software) or ASC 985-20 (software to be sold). ASU 2025-06 changes the ASC 350-40 criteria for annual periods beginning after 15 December 2027. An IFRS target capitalises development costs that meet the IAS 38 criteria, which US GAAP does not permit outside those software rules.
    • Lease accounting. Where the target is the lessee, the acquirer measures each lease liability at the present value of the remaining lease payments as if the lease were new at the acquisition date, and adjusts the right-of-use asset for favourable or unfavourable terms. A target under a local GAAP that keeps operating leases off balance sheet needs a full lease inventory. ASC 842 has no low-value exemption.
    • Provisions and contingent liabilities. Some local GAAP provisions do not meet the US GAAP definition of a liability (for example, provisions for future internal expenses) and are not recognised. Under US GAAP, an acquired contingency is recognised at fair value if that can be determined, and otherwise only if it is probable and reasonably estimable. IFRS 3 recognises a contingent liability that is a present obligation and can be measured reliably, even if an outflow is not probable.
    • Pension and post-retirement obligations. These are measured under ASC 715 (or IAS 19 for an IFRS acquirer), not at fair value. Local GAAP measurement can differ significantly. German HGB, for example, discounts pension provisions at a ten-year average rate published by the Deutsche Bundesbank (section 253(2) HGB).
    • Inventory. Acquired inventory is measured at fair value, which for finished goods is typically the selling price less costs to sell and a reasonable profit margin. The step-up flows through cost of sales as the inventory is sold. The cost formula (FIFO, weighted average) matters for the accounting after closing. LIFO is permitted under US GAAP but not under IFRS.
    • Goodwill and prior acquisitions. If the target has goodwill from its own earlier acquisitions, that goodwill is not carried into the acquirer’s balance sheet. It is eliminated, and the intangible assets from those earlier deals are identified and valued again at the new acquisition date as part of the target’s identifiable assets.

    Do not treat the local GAAP opening balance sheet as your PPA starting point. Restate it to US GAAP first. Then apply fair value adjustments on top.

    What gets fair valued in a European tech or SaaS acquisition

    For a European technology or SaaS business, the assets requiring fair value measurement typically include:

    Customer relationships. The value of the existing customer base, measured as the present value of expected future cash flows attributable to those relationships. This is often the largest intangible asset in a tech acquisition, and the one auditors spend the most time on.

    Developed technology. The fair value of the software or IP that drives the product. Measured using the relief-from-royalty method (what you would pay to license this technology if you did not own it) or the multi-period excess earnings method.

    Trade names and trademarks. Typically measured using relief-from-royalty. Smaller in tech deals unless the brand carries standalone value.

    Non-compete agreements. If sellers have signed non-competes as part of the deal, these are intangible assets that require fair value measurement and amortisation over the non-compete period.

    Deferred revenue. The treatment now depends on the acquirer’s GAAP. Under IFRS 3, the acquiree’s deferred revenue is measured at fair value, typically the cost to fulfil the remaining obligation plus a reasonable margin. This is usually lower than the carrying amount and reduces the revenue the acquirer reports after closing, often called the deferred revenue haircut. Under US GAAP, since ASU 2021-08, deferred revenue is measured under ASC 606, so there is generally no haircut.

    Contingent consideration. Earnouts based on post-acquisition performance are measured at fair value at the acquisition date. Earnouts classified as liabilities are remeasured at each reporting date, with changes in profit or loss. Earnouts classified as equity are not remeasured. The accounting for earnouts is complex and deserves its own treatment.

    The 12-month measurement period

    ASC 805 and IFRS 3 both allow a measurement period of up to 12 months after the acquisition date to finalise the fair values. During this period, provisional amounts can be adjusted as new information about facts and circumstances that existed at the acquisition date becomes available. Under US GAAP, the adjustments are recognised in the reporting period in which they are determined. Under IFRS 3, they are applied retrospectively, as if the accounting had been completed at the acquisition date.

    In practice, most deals target finalising the PPA within six months. Waiting for the full 12 months creates complexity in interim financial reporting.

    Currency in cross-border purchase price accounting

    • Currency of the purchase price. If the consideration is paid in a currency other than the acquirer’s functional currency, exchange rate movements between signing and closing change the purchase price in the acquirer’s books. Decide early whether to hedge, and whether the hedge qualifies for hedge accounting under the acquirer’s GAAP.
    • Functional currency of the target. The fair value adjustments and goodwill are treated as assets and liabilities of the acquired foreign operation and expressed in its functional currency (ASC 830-30-45-11; IAS 21 paragraph 47). They are translated into the group’s reporting currency at the closing rate at each reporting date.
    • Translation differences. After the acquisition, the translation differences on the target’s net assets, including goodwill and the fair value adjustments, go to other comprehensive income. Goodwill on a euro-denominated target therefore changes in US dollar terms every reporting period.

    Deferred tax on acquired intangible assets

    In a share deal, many European jurisdictions do not give the buyer a step-up in the tax basis of the target’s assets. The tax basis of customer relationships, developed technology and trade names often remains zero even though they appear at fair value on the consolidated balance sheet.

    • The difference creates a deferred tax liability under ASC 740 (or IAS 12) in the opening balance sheet.
    • That deferred tax liability increases goodwill and requires careful calculation for each jurisdiction’s tax rate.
    • The liability is not permanent. It reverses as the intangible assets are amortised.
    • No deferred tax liability is recognised on the initial recognition of goodwill that is not tax deductible.

    SEC filings when a US public company acquires a European business

    • Form 8-K. A domestic US registrant files Form 8-K Item 2.01 within four business days of closing a significant acquisition. Under Item 9.01, the financial statements of the acquired business and pro forma financial information follow within 71 calendar days after the date the initial report was due.
    • Significance tests. Rule 3-05 of Regulation S-X (as amended in 2020) measures significance with the investment, asset and income tests, and the income test includes a revenue component. Above 20% and up to 40%, one year of audited financial statements of the target is required. Above 40%, two years are required, and never more than two.
    • Basis of preparation. A foreign target may present financial statements under IFRS as issued by the IASB without reconciliation, or under its local GAAP with a reconciliation to US GAAP where significance exceeds 30%. The audit is performed under US GAAS or PCAOB standards.
    • Foreign private issuer acquirers. A foreign private issuer does not file Form 8-K. It furnishes Form 6-K, and Rule 3-05 financial statements of the target become relevant when it files a registration statement.

    After closing: statutory books and reporting GAAP

    The acquired entity keeps its local statutory books for filings and tax, while the group needs US GAAP figures every reporting period. The recurring adjustments (amortisation of acquired intangibles, deferred revenue, leases, pensions and the related deferred tax) need to be held in a conversion layer that is rerun each period, and the ERP or consolidation system has to be able to carry both sets of figures. For the work that starts after closing, see cross-border acquisitions: what starts after the deal team leaves.

    What auditors want to see in a cross-border PPA

    For a PCAOB audit, the PPA needs to be supported by a valuation that uses observable market inputs where available and documents all significant assumptions. The customer relationship valuation model, the revenue attrition assumptions, the discount rate, and the royalty rate applied to developed technology all need to be in writing before the audit begins.

    Your GAAP conversion workpaper also needs to be detailed. Show the local GAAP opening balance sheet, document each restatement entry, and reconcile to the US GAAP opening balance sheet. Then show the PPA fair value adjustments on top of that. Auditors will ask for both.

    The documentation is substantial work for the internal team, but it is also what protects the purchase price allocation from challenge during the audit.

    I have helped dozens of companies through the acquisition of European entities, with acquirers and investors ranging from Intel and Bitly to Bain and Insight Partners. For the complete picture, including due diligence timing and post-acquisition GAAP conversion, see the Acquisitions with US entities section of the European Accounting and Reporting Guide.