Proposed ASU addresses business combinations with VIEs
Defining Issues | October 2024
The proposed ASU would reduce differences in the accounting acquirer when the transaction involves a VIE.
The proposed ASU would amend the ASC 805 framework for identifying the accounting acquirer in business combinations when the legal acquiree is a Variable Interest Entity (VIE). Entities would be required to consider the general factors in ASC 805 in the accounting acquirer determination when the transaction is primarily effected by the exchange of equity interests.
Applicability
- Entities involved in acquisition transactions effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business
Relevant dates
- Exposure draft issued October 30, 2024
- Comments due December 16, 2024
Key proposals
Under current US GAAP, a business combination involving the acquisition of a Variable Interest Entity (VIE) always results in the primary beneficiary (i.e. the legal acquirer) being the accounting acquirer. This has prevented acquisitions of a VIE from being accounted for as reverse acquisitions and resulted in inconsistencies in the accounting for acquisitions of VIEs and entities that are not VIEs.
Under the proposed amendments, this rule is eliminated. Instead, entities would be required to consider the factors in ASC 805 to determine the accounting acquirer when the acquisition of a VIE that is a business is primarily effected by the exchange of equity interests. However, the amendments would not change the rule for acquisitions of VIEs that are not a business.
The proposed amendments would be applied prospectively. The FASB will determine the effective date after considering stakeholder feedback. Early adoption would be permitted.
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Proposed ASU
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Resource
Handbook: Business combinations
Latest edition: Our in-depth guide to accounting for acquisitions of businesses, updated for recent application issues.
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Handbook: Consolidation
Latest edition: Our in-depth consolidation guide, covering variable interest entities, voting interest entities and NCI.
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