ASC 805 vs IFRS 3: How the Two Standards Define the Valuation Scope Differently

Published on 02 Jun, 2026

Whether the acquisition is governed by ASC 805 or IFRS 3 determines what needs to be identified, how goodwill is calculated, and how earnouts and minority interests are measured at the acquisition date.

Why the standard you report under changes the valuation scope

A common assumption among acquirers is that purchase price allocation methodology is standard regardless of geography. In practice, the two primary standards governing business combinations, ASC 805 under US GAAP and IFRS 3 under international reporting standards, differ affect the scope of a PPA engagement.

These differences affect the scope of intangible assets identified, the total goodwill recognized, the fair value of earnouts measured at acquisition date, and how minority are measured. Each of these differences has consequences for the valuation engagement, and the report produced.

For acquirers operating across multiple jurisdictions, the differences matter even more. A US acquirer purchasing a UK-incorporated business may find that the target's auditors require an IFRS 3 compliant PPA while the acquirer's own consolidated statements are prepared under US GAAP. Understanding where the standards align and where they diverge is essential for scoping the valuation engagement correctly from the outset.

For a full introduction to what PPA involves under both standards, see What is Purchase Price Allocation? A Complete Guide for Acquirers.

Where ASC 805 and IFRS 3 align on intangible asset recognition

The core intangible asset recognition framework is substantially the same under both standards. Both ASC 805 and IFRS 3 require that an intangible asset be recognized separately from goodwill if it meets either of two criteria:

The separability criterion: the asset can be separated from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability.
The contractual-legal criterion: the asset arises from contractual or legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations

This means that under both standards, customer relationships, developed technology, trade names, non-compete agreements, and in-process research and development are all potentially recognizable — provided they meet one of the two criteria. The valuation firm's asset identification process is therefore substantially the same whether it is working under ASC 805 or IFRS 3.

Where alignment is strongest: For most standard technology, services, and consumer business acquisitions, the intangible assets identified under ASC 805 and IFRS 3 will be broadly similar. The separability and contractual-legal recognition criteria produce consistent outcomes across both standards in most transactions. For a detailed treatment of how intangibles are identified and valued, see How Intangible Assets Are Identified and Valued in PPA.

Non-controlling interest measurement: a decision that must be made before scoping the engagement

When an acquisition results in control of a business without purchasing 100% of it, a non-controlling interest (NCI) exists. How that NCI is measured at the acquisition date is one of the most significant valuation scope differences between the two standards and it is a decision that directly affects the scope and cost of the PPA engagement.

Under ASC 805

There is no choice to make. ASC 805 requires the NCI to be measured at fair value at the acquisition date. This means an independent valuation of the minority interest is always required as part of the PPA engagement. The NCI should be flagged to the valuation firm at the scoping stage so this work is included from the outset.

If you report under IFRS 3

IFRS 3 gives the acquirer a choice for each acquisition. The NCI can be measured at fair value, in which case an independent NCI valuation is required, as under ASC 805 or it can be measured at the proportionate share of the acquiree's identifiable net assets, in which case that independent valuation step is not required.

This election has practical consequences for the scope of the engagement. The fair value election adds scope and cost to the PPA. The proportionate share election does not require the same valuation work. Neither election is inherently better, the right choice depends on the Company’s reporting requirements and auditors' guidance. What matters from a PPA planning perspective is that this decision is made before the valuation engagement is scoped, not after.

ASC 805 (US GAAP) - Full goodwill method only

NCI measured at fair value at acquisition date
Independent NCI valuation always required
No election available
Flag NCI existence at engagement scoping stage
Minority discount analysis forms part of the PPA scope

IFRS 3 (International) - Full or partial goodwill method

Election available on each acquisition
Full goodwill: NCI at fair value — independent valuation required
Partial goodwill: NCI at proportionate share of net assets — independent valuation not required
Election must be made before engagement scoping
Confirm choice with auditors before engaging a valuation firm

Contingent consideration at acquisition date: how earnout valuation scope differs

Both standards require contingent consideration, including earnouts, to be measured at fair value at the acquisition date. This is a shared requirement under ASC 805 and IFRS 3 — in both cases, an independent fair value for any earnout or milestone-based payment must be produced at the time of acquisition.

Where subsequent remeasurement of the earnout is required in future reporting periods, this is typically treated as a separate engagement from the initial PPA. The initial earnout model should be built with sufficient transparency and documentation to support any future remeasurement requirements.

Goodwill: how the NCI election affects the goodwill figure

Under both ASC 805 and IFRS 3, goodwill is the residual after all identified assets and liabilities have been measured at fair value. The more rigorously intangible assets are identified and valued in the PPA, the lower and more accurate the residual goodwill figure. This principle is identical under both standards.

The one area where the goodwill figure will differ between the two standards is a direct consequence of the NCI election described above. Where the full goodwill method is applied, the total goodwill recognized is higher than where the partial goodwill method is applied — because the NCI's contribution to goodwill is included under the full goodwill method and excluded under the partial goodwill method. The election therefore has a direct and predictable effect on the goodwill figure that appears in the post-acquisition balance sheet.

Summary comparison: valuation scope differences between ASC 805 and IFRS 3

VALUATION AREA	ASC 805 (US GAAP)	IFRS 3 (INTERNATIONAL)
Intangible asset recognition criteria	Separability or contractual-legal criterion	Same — separability or contractual-legal criterion
Intangible asset valuation methodology	Income, market, or cost approach under ASC 820	Same — income, market, or cost approach under IFRS 13
Non-controlling interest measurement	Fair value only — Independent NCI valuation always required	Choice: fair value (independent NCI valuation required) or proportionate share of net assets (independent NCI valuation not required)
Goodwill recognised	Always full goodwill—NCI contributes to total goodwill	Full or partial goodwill, depending on NCI election—partial goodwill produces a lower total goodwill figure
Contingent consideration at acquisition date	Fair value required — independent acquisition-date valuation always required	Same — fair value required at acquisition date
Green rows indicate areas of alignment between the two standards. Amber rows indicate areas of divergence that affect valuation scope.

Key Takeaways

The intangible asset recognition criteria under ASC 805 and IFRS 3 are substantially aligned, both require recognition of separable assets and assets arising from contractual or legal rights, producing broadly similar intangible asset identification outcomes for most acquisitions
The most significant valuation scope difference between the two standards is in non-controlling interest measurement, ASC 805 always requires an independent NCI fair value, while IFRS 3 gives a choice between fair value and the proportionate share of net assets
Under IFRS 3, the NCI measurement election must be made before the valuation engagement is scoped, the choice directly determines whether an independent NCI valuation is required and affects the total goodwill recognized
Both standards require contingent consideration to be measured at fair value at the acquisition date, the initial earnout model should be built with sufficient transparency to support any future remeasurement requirements
Goodwill is the residual under both standards, the more rigorously intangible assets are identified and valued, the more accurate the goodwill figure. The NCI election under IFRS 3 also directly affects the total goodwill recognized
Cross-border acquisitions where both ASC 805 and IFRS 3 apply to different entities require a valuation firm with experience in both frameworks, the intangible identification work is substantially the same, but the NCI measurement and goodwill calculation will differ by entity