IFRS IC confirms its position on payments contingent on continued employment following a business combination (IFRS 3)

(the IFRIC Update of March 2024 can be consulted here) 

The fact pattern described in the request was as follows:  

• the acquisition agreement requires the sellers to continue as employees of the acquired business to ensure the appropriate transfer of knowledge from the sellers to the new management team;  
• the sellers are compensated for their services at a level comparable to other management executives, and receive additional payments contingent upon both the performance of the acquired business and the continued employment of the sellers for a limited period after acquisition;  
• the sellers are entitled to receive the additional payments if their employment is terminated due to specified circumstances—such as death or disability—or with the entity’s agreement. The sellers forfeit the additional payments if their employment is terminated in any other circumstances 

Observing that there were no significant diversity in the accounting for payments contingent upon continued employment in fact patterns such as that described in the request, the Committee pointed out that the acquirer should apply the provisions of IFRS 3 as revised in January 2013, and account for the payments as compensation for post-combination services rather than as additional consideration for the acquisition, unless the service condition is not substantive.   

In publishing this decision, the Committee confirms the position taken ten years earlier, in January 2013 (accessible here).