The IASB noted that the classification requirements for contingent consideration were unclear as to when 'other applicable IFRSs' would need to be used to determine the classification of contingent consideration as either a financial liability or an equity instrument.
The IASB also noted that IFRS 3 Business Combinations requires the subsequent measurement of contingent consideration to be at fair value; however IFRS 3 also refers to IFRS 9 Financial Instruments and "IAS 37 or other IFRSs as appropriate" in the subsequent measurement requirements for contingent consideration. IFRS 9 and "IAS 37 or other IFRSs as appropriate" potentially have different measurement bases that are not fair value.
The IASB therefore proposed to clarify this by:
- Deleting the reference to "other applicable IFRSs" in the classification requirements
- Deleting the reference to "IAS 37 or other IFRSs as appropriate"
- Amending the classification requirements of IFRS 9 to clarify that contingent consideration that is a financial asset or financial liability can only be measured at fair value, with changes in fair value being presented in either profit or loss or other comprehensive income depending on the requirements of IFRS 9.