Auditing Ind AS 103 — testing purchase price allocation and goodwill

Auditing a business combination under Ind AS 103 means testing three things in sequence: that the acquirer was correctly identified and the acquisition date is the date control actually passed, that consideration transferred was measured at fair value on that date including any contingent consideration, and that every identifiable asset and liability acquired — not just the ones on the target's own balance sheet — was recognised at fair value, with goodwill (or a bargain purchase gain) emerging only as the residual after that allocation is complete.

Where PPA testing usually needs to go deeper

• Intangible assets not previously recognised by the target — customer relationships, order backlog, brand, non-compete agreements, developed technology — must be identified and fair valued separately from goodwill if they meet the separability or contractual-legal criterion.
• Contingent consideration (earn-outs) must be fair valued at the acquisition date and remeasured through profit or loss each period thereafter if classified as a liability, not simply recognised when paid.
• Contingent liabilities of the acquiree are recognised at the acquisition date if their fair value can be measured reliably, a lower recognition threshold than Ind AS 37's own probable-and-estimable test.
• Deferred tax on the fair value uplifts of acquired assets needs to be recognised, which itself changes the goodwill computation.

Audit procedures

1. 01Confirm the acquisition date against the share purchase or control transfer documentationNot the deal signing date, and not the date funds were paid — the date control actually transferred.
2. 02Independently assess the valuation of consideration and identifiable assetsWhere management engaged an external valuer, evaluate their competence and the valuation methodology used for each major asset class, rather than accepting the final allocation schedule at face value.
3. 03Recompute the goodwill (or bargain purchase) arithmeticGoodwill equals consideration transferred plus non-controlling interest plus fair value of previously held equity interest, less net identifiable assets acquired at fair value — a bargain purchase gain (a negative result) should trigger a reassessment of whether the allocation is complete before being recognised in profit or loss.
4. 04Test the measurement period adjustmentsAdjustments to provisional amounts recognised at the acquisition date are permitted only within the one-year measurement period and only for facts that existed at the acquisition date — a later change outside that window goes through profit or loss, not against goodwill.