The FASB has issued an Exposure Draft that is intended to improve comparability between identifying the acquirer in transactions that includes a variable interest entity (VIE) and those not involving VIEs by amending the guidance under ASC 805, Business Combinations. The conclusion 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, while the acquirer maintains the historical basis of their assets and liabilities.  

 
Under the current guidance of ASC 805, when the acquired entity is not a VIE, an entity that obtains control of the acquiree through a controlling financial interest is the accounting acquirer. To determine which entity obtains control, ASC 805-10-55-11 to 805-10-55-15 include 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. 

Stakeholders noted that diversity in determining the acquirer in a business combination is dependent on whether the acquiree is a VIE or not. Specifically, stakeholders noted that if the legal acquiree is a VIE, the transaction can never be accounted for as a reverse transaction as the primary beneficiary is always the accounting acquirer.

Under the Exposure Draft, the current guidance would be revised to state that when a legal acquiree is a VIE that meets the definition of a business, entities would assess the factors included in ASC 805-10-55-11 to 805-10-55-15 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 effective date of the amendments in the Exposure Draft has not yet been determined. The amendments in the Exposure Draft are proposed to be adopted prospectively to any acquisition transactions that occur after the initial application date. Early adoption would be permitted. 

The full text of the Exposure Draft can be found here. 
 

Published: 12/01/2024

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