FASB issues guidance on business combinations

May 12, 2025

FASB on Monday published an Accounting Standards Update (ASU) that is intended to improve the requirements for identifying the accounting acquirer in FASB ASC Topic 805, Business Combinations.

The ASU, proposed last year based on an Emerging Issues Task Force recommendation, is effective for annual reporting periods beginning after Dec. 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted.

In a business combination, the determination of the accounting acquirer can significantly affect the carrying amounts of the combined entity’s assets and liabilities, according to a news release.

The ASU will revise current guidance for determining the accounting acquirer for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable-interest entity that meets the definition of a business. The amendments require an entity to consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions.

[Journal of Accountancy]