What is the measurement approach for contingent consideration under IFRS?

The measurement approach for contingent consideration under IFRS is indeed based on fair value at the time of acquisition. When a business combination occurs, any contingent consideration that might be payable by the acquirer is recognized and initially measured at its fair value at the acquisition date. This fair value measurement reflects the expected future payments that are contingent upon certain events or conditions, such as achieving specific performance targets.

This approach aligns with the principles of IFRS 3, which emphasizes the need for transparency and a realistic valuation of the assets and liabilities acquired during a business acquisition. By measuring contingent consideration at fair value, companies ensure that the financial statements provide a more accurate portrayal of the financial position of the entity, taking into account potential obligations that may arise from the acquisition.

Over time, this contingent consideration may need to be remeasured at fair value in subsequent reporting periods, which can lead to changes in profit or loss if the fair value of the contingent consideration fluctuates. This ongoing reevaluation helps maintain the integrity and accuracy of the financial information reported, ensuring stakeholders are aware of any potential liabilities that could affect the organization's financial health.