FASB proposes to clarify guidance on acquirer in business combinations

The Financial Accounting Standards Board posted a proposed accounting standards update Wednesday with the goal of improving the requirements for identifying the accounting acquirer in a business combination.

The proposal would affect the current guidance in FASB Accounting Standards Codification Topic 805, Business Combinations. It stems from a recommendation of the Emerging Issues Task Force. 

In a business combination, the determination of the accounting acquirer can significantly affect the carrying amounts of the combined entity's assets and liabilities, which can affect the combined entity's post-transaction net income, FASB noted. The proposed ASU would set more consistent requirements for determining the accounting acquirer when a business is acquired in a transaction achieved by exchanging equity interests.

Patrick Dorsman/Financial Accounting Foundation

In addition, the proposal would more closely align the requirements for determining the accounting acquirer in the acquisition of a variable interest entity with the current requirements that apply to transactions that don't involve a VIE. FASB believes the proposal would enhance financial statement comparability by providing consistent requirements for economically similar transactions.

FASB is asking its stakeholders to review and provide comments on the proposed ASU by Dec. 16, 2024. The document includes information on how to submit comments.