On May 12, 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-03 to address long-standing complexities in how companies determine the accounting acquirer when the legal acquiree is a variable interest entity (VIE).

For years, GAAP required the primary beneficiary of a VIE to always be the accounting acquirer, even when the general factors in Topic 805 pointed to a reverse acquisition. This often led to counterintuitive results, especially in transactions such as SPAC mergers.

That’s changed.

The ASU modifies the rules by:

• Limiting situations where the primary beneficiary must be the acquirer, bringing more balance to the framework.
• Requiring consideration of Topic 805’s general factors (voting rights, governance, management, size, etc.) when determining the accounting acquirer for a business combination that is primarily effected by issuing equity
• Aligning practice more closely with economic reality, particularly in equity-driven transactions where former owners of the VIE may effectively control the combined entity

Effective Date & Adoption

The new Financial Accounting Standards Board (FASB) rule is set to take effect for annual and interim periods beginning after December 15, 2026. However, entities are allowed to adopt the rule early, provided they do so on a prospective basis, as retrospective application is explicitly prohibited. Organizations that choose to adopt the rule must disclose the nature of the change and the reasons for its implementation at the time of adoption.

Why It Matters

This ASU should result in more intuitive outcomes for investors and preparers by aligning VIE business combination accounting with the broader framework. It reduces inconsistencies, increases comparability, and better reflects the substance of the transaction.