After initial recognition of the contingent consideration of an acquiree, some believe the assumed contingent consideration should be treated as an assumed liability. A preexisting contingent consideration arrangement of the acquiree may be considered an assumed liability because it is payable to a third party rather than the seller in the business combination. Others believe the contingent consideration should be accounted for as part of the consideration transferred (as would be the case, for example, in a contingent consideration arrangement agreed upon between the acquirer and acquiree).

Under IFRS, we believe contingent consideration of an acquiree should be accounted for as an assumed liability. Preexisting contingent consideration does not meet the definition of contingent consideration in the acquirer’s business combination because it is not paid to the sellers of the acquired business. It is an identifiable liability assumed in the subsequent acquisition.