How are transaction fees treated under both US GAAP and IFRS rules in mergers and acquisitions?

In mergers and acquisitions, transaction fees are typically expensed in the current period under both US GAAP and IFRS. This practice means that costs associated with the acquisition, such as legal fees, investment banking fees, and due diligence expenses, are recognized as an expense in the financial statements in the period in which they are incurred.

The rationale behind this treatment is that these transaction fees do not provide future economic benefits that would justify capitalizing them as an asset. Instead, they are considered as costs related to the process of acquiring another entity, rather than costs directly related to the assets acquired or the future operations of the combined entity.

As a result, expenses related to transaction fees impact the income statement in the period they are paid or incurred, reflecting the costs of that specific transaction in the current financial performance rather than deferring them to future periods. This aligns with the principles of conservatism and matching in accounting, where expenses should be recognized in the same period as the revenues they relate to, providing a clearer picture of profitability in that period.