What is the treatment for acquisition-related costs in financial accounting?

Acquisition-related costs are typically associated with the process of acquiring a business, including legal fees, due diligence costs, and advisory fees. In financial accounting, the proper treatment of these costs is to recognize them as an expense in the period incurred.

This treatment aligns with the matching principle of accounting, which states that expenses should be recognized in the same period as the revenues they help to generate. Since acquisition-related costs do not directly contribute to the identifiable assets acquired in a business combination, they do not meet the criteria for capitalization. Instead, they are associated with the transaction itself and need to be reflected in the financial statements as expenses in the reporting period during which they are incurred.

The other options do not accurately reflect the standards set by accounting frameworks such as IFRS or GAAP. For instance, capitalizing these costs as an asset would imply they could generate future economic benefits, which they do not independently provide. Ignoring them in financial statements would also misrepresent the company’s financial position and performance, as these costs are part of the overall transaction costs. Deferring them until finalization of the acquisition does not align with the requirement for immediate expense recognition.