The identification of the accounting acquirer is an important determination, as the assets and liabilities of the entity acquired are generally required to be reported at fair value as of the acquisition date, subject to specific exceptions under ASC 805, Business Combinations, while the acquirer maintains the historical basis of their assets and liabilities.
Under the previous guidance, when the legal acquiree entity was not a VIE, an entity that obtained control of the acquiree through a controlling financial interest was the accounting acquirer. To determine which entity obtains control, ASC 805-10-55-11 to 55-15 includes certain factors to consider, including which entity has majority voting rights after the combination, the composition of the governing body and management, which entity transfers consideration, and various other indicators. In certain situations, a reverse acquisition can occur in which the legal acquiree may be the accounting acquirer in a business combination transaction. However, when the legal acquiree is a VIE, the entity that is the primary beneficiary of the VIE is always the acquirer.
Under ASU 2025-03, a legal acquiree that is a VIE and meets the definition of a business would assess the factors included in ASC 805-10-55-11 to 55-15 to determine the accounting acquirer, which aligns the same accounting outcome for economically similar transactions, whether the legal acquiree is a VIE or not.
The amendments are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods are to be applied prospectively to all acquisition transactions. Early adoption is permitted as of the beginning of the interim or annual reporting period.
The full text of the ASU 2025-03 can be found here.
Published: 06/03/2025
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