Proposed FASB updates to identify the accounting acquirer in VIE acquisitions

The Financial Accounting Standards Board (FASB) issued Proposed Accounting Standards Update (ASU), Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity.

Overview of proposed amendments

The proposed amendments are intended to establish more consistent requirements for determining the accounting acquirer in an acquisition achieved by exchanging equity interests.

The proposed amendments would apply to entities involved in acquisitions effected primarily by exchanging equity interests when the legal acquiree is a variable interest entity (VIE) that meets the definition of a business.

Comments are due Dec. 16, 2024.

Key provisions

In an agenda request sent to the Board in November 2023, stakeholders indicated that the current guidance for determining the accounting acquirer in accordance with Topic 805, Business Combinations, results in a lack of comparability between transactions involving VIEs and those involving voting interest entities.

Specifically, stakeholders indicated the current guidance creates significant inconsistencies in financial reporting outcomes among economically similar transactions.

In a business combination in which the acquired entity is a voting interest entity, certain factors in Topic 805 should be considered when identifying the accounting acquirer. The application of these factors may result in a business combination being accounted for as a reverse acquisition where the legal acquirer is identified as the acquiree for accounting purposes.

If the accounting acquiree doesn’t meet the definition of a business, the transaction wouldn’t be accounted for as a business combination.

However, in a business combination in which a VIE is acquired, current GAAP requires the primary beneficiary — as determined in accordance with Topic 810,