FASB Clarifies Accounting Acquirer Criteria in Mergers and Acquisitions

Ever seen a merger where the “acquired” company somehow ends up calling the shots? Welcome to accounting’s version of “Who’s the boss?” And thanks to FASB’s new guidance under ASU 2025-03, that mystery just got a little more logical, and a lot fairer. This update shakes up the rules in FASB Topic 805 (Business Combinations) and Topic 810 (Consolidations), especially when variable interest entities (VIEs) are involved. The big idea? Let economic reality, not rigid rules, decide who the true accounting acquirer is.

Why This Update Matters

Let’s break it down. When companies merge, figuring out who the accounting acquirer is shapes the entire future of their financial reporting. The acquirer keeps its books as-is, while the acquiree’s assets and liabilities get remeasured, usually at fair value. That can lead to goodwill spikes, asset markups, and big shifts in net income. Previously, if a VIE was in play, Topic 810 forced the primary beneficiary to be the acquirer—no ifs, ands, or equity swaps. That meant two identical deals could get different treatment on the books, simply because one entity had VIE status. Richard Jones, FASB Chair, called this out, stating: “This ASU makes financial reporting more comparable and decision-useful for investors.” Translation: we're finally ditching the one-size-fits-all rulebook.

From Rigid to Real

Under ASU 2025-03, if a VIE is the legal acquiree and the deal is primarily equity-based, companies no longer default to the “primary beneficiary is always the acquirer” rule. Instead, they must now apply five qualitative factors from 805-10-55-12 to 55-15 to figure out who’s really in control:

• Who has the majority voting rights post-deal?
• Who appoints or removes the board?
• Who runs the day-to-day operations?
• Who started the merger process?
• Who’s shelling out the premium?

This shift makes the process more substance over form, especially helpful in today’s landscape of LLCs, Up-C structures, and SPAC mergers, which often involve VIEs. It’s about time accounting caught up to modern M&A.

Now they’re on the Table

Under the old rules, reverse acquisitions, where the legal acquirer is the accounting acquiree, weren’t even an option if a VIE was involved. Not anymore. ASU 2025-03 says: if the facts fit, call it what it is. This opens the door for more accurate financial storytelling, especially in transactions where private companies merge with SPACs or public shells but retain real control post-merger. Case in point: Under the new guidance, a target VIE with voting control post-deal might be labeled the accounting acquirer, even if they were technically “acquired”. Now, Up-C deals and equity-heavy de-SPACs get the treatment they deserve, aligning books with business logic.

Not Every Deal Qualifies

Let’s clear the air: this isn’t a blanket change. The new rules only apply when:

• The legal acquiree is a VIE
• The VIE meets the definition of a business
• The transaction is primarily an exchange of equity interests

So, if the VIE isn’t a business or the deal’s structured with cash or liabilities, the old rules still apply—primary beneficiary = acquirer. This scope helps FASB maintain clarity while avoiding unintended consequences. Stakeholders even suggested broader changes, but the Board kept it tight to avoid complexity creep

Don’t Sleep on This

This isn’t some footnote update buried in the back of your GAAP binder. It’s a realignment of power in purchase accounting. Financial statements will now better reflect who’s truly driving the bus, not just who footed the bill.

Key Details You Need to Know:

• Effective date: Annual periods beginning after Dec. 15, 2026
• Early adoption: Fully permitted
• Transition: Prospective application—no need to restate past deals

If your deal structure involves a VIE and equity exchange, this is your cue to:

• Rethink your deal modeling
• Reevaluate who’s the acquirer
• Update your investor messaging
• Coordinate now with legal and audit teams

Let’s Call a Timeout

This ASU levels the playing field. No longer does the mere label of a VIE force accounting hands. The focus shifts to actual control and economic influence, improving comparability across public companies, private equity firms, and even emerging SPACs. Plus, it brings U.S. GAAP closer to IFRS 3, which already applies similar substance-based logic without hardwiring the primary beneficiary as the acquirer. The release of ASU 2025-03 isn’t just a standards tweak; it’s a mindset reset. If your team is navigating a deal involving a VIE, this update could be the difference between transparent financial reporting and a head-scratching mismatch. So, here’s your call to action: Dust off those merger models. Chat with your CFO. And make sure your next deal doesn’t tell the wrong story. Want to dive deeper into the official standard? Check out the ASU 2025-03 release from FASB here. Get the latest in tax, finance, and policy straight to your inbox—join the MYCPE ONE Insights newsletter.