The International Accounting Standards Board (IASB) is considering changes that could affect how businesses classify certain acquisition-related payments in the statement of cash flows. The proposals are still under development and do not change current IFRS requirements, but they give finance teams an early indication of the direction of travel for business-combination reporting.

In its September 2026 discussions, the IASB considered whether payments of deferred or contingent consideration, pre-existing debt of an acquired business and transaction costs should be classified consistently under IAS 7. The discussions formed part of the IASB’s broader project on the statement of cash flows and related matters. The IASB’s decisions remain tentative and further deliberation is expected. See the IFRS Foundation’s IASB Update.

What the IASB is considering

The tentative direction would distinguish between amounts that form part of the consideration transferred for obtaining control and other payments connected with the transaction.

  • Deferred and contingent consideration: payments arising from the business combination would be classified as investing activities.
  • Pre-existing debt of the acquiree: payments settling that debt would be classified as financing activities.
  • Transaction costs: payments such as qualifying acquisition-related costs would be classified as operating activities.

These proposals are intended to clarify the relationship between the acquisition transaction and the underlying financing and operating cash flows. They are not an enacted amendment, so businesses should not change their accounting policies solely on the basis of the September discussion.

Who may be affected

The issue is most relevant to groups that acquire subsidiaries or businesses, particularly where purchase agreements include earn-outs, deferred settlement terms, assumed debt or significant transaction costs. It may also matter to finance teams preparing consolidated cash-flow statements, reviewing acquisition models or explaining cash conversion to lenders and investors.

Smaller businesses are less likely to encounter every element of the proposal, but the same discipline is useful whenever an acquisition includes multiple payment streams. A single bank payment may relate to consideration, debt settlement and professional fees, each with a potentially different accounting treatment.

What finance teams should check now

  • Review acquisition agreements and identify deferred, contingent and other conditional payments.
  • Separate payments for the purchase consideration from payments settling liabilities that already existed in the acquired business.
  • Track legal, advisory and other transaction costs in distinct general-ledger accounts.
  • Ensure the cash-flow statement can be reconciled to the purchase-price allocation, debt schedules and bank payments.
  • Document the accounting judgement applied to each payment category, including the treatment of non-cash consideration.

Practical next steps for South African businesses

Finance teams should monitor the IASB project rather than treating the tentative decisions as immediate compliance requirements. Businesses planning acquisitions can nevertheless improve their data now by building payment classifications into transaction checklists, chart-of-accounts structures and reporting packs.

Groups that report under IFRS should also discuss the potential impact with their auditors or accounting advisers before finalising complex acquisition arrangements. Early review may reduce the risk of having to reconstruct payment histories when final requirements are issued.

The IFRS Foundation has indicated that the IASB will continue considering improvements to financial reporting in this area. The wider 2026 standard-setting programme also includes work on financial instruments, IFRS 18 and the IFRS for SMEs Accounting Standard, as noted in the Foundation’s 2026 World Standard-setters Conference debrief.

For support with accounting processes, financial reporting or transaction controls, businesses can explore Your Financial Partner’s accounting and advisory services.