Understanding ASU 2025-03: New Guidance for Equity-Based Acquisitions Involving VIEs

Has your organization evaluated the implications of the new FASB guidance on equity-based acquisitions involving variable interest entities (VIEs)?

In May 2025, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (“ASU 2025-03”) with the goal of improving the requirements for identification of the accounting acquirer during a business combination accounted for under ASC 805 – Business Combinations. ASU 2025-03 amends the ASC 805 framework for identifying the accounting acquirer in business combinations when the legal acquiree is a variable interest entity (“VIE” as defined in ASC 810, Consolidation) by requiring entities to consider the general accounting acquirer factors in ASC 805, Business Combinations, when the transaction is primarily effected by the exchange of equity interests. The objective of this goal was to address stakeholder concerns about inconsistencies in the way the accounting acquirer is determined in transactions that are determined to be business combinations that involve VIEs.

Current Guidance

Under the current accounting standards, when a business combination transaction has been identified, companies are required to determine which entity in the transaction is the accounting acquirer (e.g., “the Buyer”), and the other entity is the accounting acquiree (e.g., the “Seller”).  Oftentimes, this can be different than the legal acquirer and legal acquiree per contractual arrangements or merger agreements. Prior to ASU 2025-03, a business combination involving the acquisition of a VIE always resulted in the primary beneficiary being the accounting acquirer. Therefore, acquisitions of a VIE were prevented from being accounted for as reverse acquisitions.  This, in turn, has resulted in inconsistent accounting treatment for acquisitions of VIEs versus non-VIEs. 

The Amendments

The amendments in ASU 2025-03 affect entities involved in acquisition transactions effected primarily by the exchange of equity interests when the legal acquiree is a VIE that meets the definition of a business.  The amendments in ASU 2025-03 require the company involved in an acquisition transaction that meets these criteria to consider the factors in paragraphs ASC 805-10-55-12 through 55-15 to determine which entity is the accounting acquirer and not to default to the primary beneficiary as the accounting acquirer. This amendment is expected to enhance the comparability of financial statements across entities engaging in accounting for such acquisition transactions. 

What Isn’t Changing

The issuance of ASC 2025-03 does not change the accounting for the following:

• A transaction determined to be a reverse acquisition; or
• A transaction in which the legal acquirer is not a business and is determined to be the accounting acquiree.

Adoption Options

All companies are required to adopt the amendments in ASU 2025-03 with annual reporting periods beginning after December 15, 2026, and the interim periods within those annual reporting periods.  Companies will be required to adopt ASU 2025-03 prospectively to any acquisition that occurs after the initial adoption date.  Early adoption is permitted as of the beginning of an interim or annual reporting period.

How Centri Can Help

At Centri, our team of technical accounting and valuation experts is well-equipped to guide your business through the complexities of ASU 2025-03. We offer comprehensive support throughout the transaction lifecycle, including:

• Serving as the central point of contact for the working group, ensuring that responsibilities are clearly defined and critical deadlines for the merger transaction and post-merger integration lifecycles are met.
• Assisting with the preparation of technical accounting memorandum(s) to support the determination of the accounting acquirer and other common and key elements encountered in business combination and acquisition transactions under ASC 805, including, but not limited to, fair value considerations and contingent consideration, among others.
• Assist with the preparation of acquisition footnote disclosure and disclosure tables.
• Prepare Purchase Accounting Valuation Reports for Purchase Price Allocations (“PPA”), Contingent Consideration valuations (e.g., “Earn-outs”), among other valuations typically encountered in business combination transaction accounting.

Whether you’re navigating a current transaction or preparing for future acquisitions, Centri is here to help you apply the new guidance with confidence. ﷟Contact us to learn how we can help your business succeed.