FASB issues ASU on business combinations with VIEs
Defining Issues | May 2025
The ASU clarifies the accounting acquirer determination in acquisitions where the legal acquiree is a VIE.
ASU 2025-03 amends the ASC 805 framework for identifying the accounting acquirer in business combinations when the legal acquiree is a VIE by requiring entities to consider the general accounting acquirer factors in ASC 805 when the transaction is primarily effected by the exchange of equity interests.
Applicability
- All 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
| Effective date | All entities |
| Annual periods – Fiscal years beginning after | Dec. 15, 2026 |
| Interim periods – In fiscal years beginning after | Dec. 15, 2026 |
Early adoption is permitted in interim or annual reporting periods in which financial statements have not yet been issued (or made available for issuance).
Key impacts
Prior to ASU 2025-03, a business combination involving the acquisition of a VIE always resulted 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 new ASU, this rule is eliminated. Instead, entities are required to consider the factors in ASC 805 in determining the accounting acquirer when the acquisition of a VIE that is a business is primarily effected by the exchange of equity interests. However, the ASU does not change the rule for acquisitions of VIEs that are not a business.
The ASU is applied prospectively to all business combinations with acquisition dates occurring on or after the date of initial application. The ASU is effective for all annual reporting periods (and interim periods in annual reporting periods) beginning after December 15, 2026.
Report contents
- Source and applicability
- Fast facts, impacts, actions
- Background
- Key changes
- Effective dates and transition
Download the document:
FASB issues ASU on business combinations with VIEs
Download PDFExplore more
Resource
Handbook: Business combinations
Latest edition: Our in-depth guide to accounting for acquisitions of businesses, updated for recent application issues.
Resource
Handbook: Consolidation
Latest edition: Our in-depth consolidation guide, covering variable interest entities, voting interest entities and NCI.
Reference Library
In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues.