FASB issues guidance on determining the acquirer in a VIE acquisition

ARTICLE | June 06, 2025

Authored by RSM US LLP

The Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, which amends existing guidance for determining the accounting acquirer for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable interest entity (VIE) that meets the definition of a business. The amendments require an entity to consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions.

Background information and main provisions of ASU 2025-03

Identifying the accounting acquirer in a business combination is important as it affects whether the assets and liabilities acquired in the transaction are recognized at fair value or current carrying value. Under current guidance, in a business combination in which a VIE is acquired, the primary beneficiary of that entity always is the acquirer. On the other hand, business combinations not involving a VIE require consideration of the factors in paragraphs 805-10-55-10 through 55-15 (“Topic 805 Factors”) to determine which entity is the accounting acquirer. Consequently, the inconsistent requirements often result in different accounting outcomes for economically similar transactions.

To increase the comparability of accounting outcomes for economically similar transactions, the amendments in ASU 2025-03 require an entity involved in a business combination that meets both of the following conditions to consider the Topic 805 Factors to determine which entity is the accounting acquirer:

• The legal acquiree is a VIE that meets the definition of a business.
• The transaction was effected primarily by exchanging equity interests.

ASU 2025-03 does not change the accounting for a transaction determined to be a reverse acquisition, acquisitions of VIEs that do not meet the definition of a business, or acquisitions of VIEs that are not effected primarily by exchanging equity interests.

Effective date and transition

The amendments in ASU 2025-03 are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The amendments should be applied prospectively to business combinations that occur on or after the effective date. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued (or made available for issuance).

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