The US Financial Accounting Standards Board (FASB) has released an Accounting Standards Update (ASU) to enhance the requirements for identifying the accounting acquirer in FASB Accounting Standards Codification Topic 805, Business Combinations.  

The update is based on a recommendation from the Emerging Issues Task Force (EITF). 

It revises existing guidance for determining the accounting acquirer in transactions primarily involving the exchange of equity interests, where the legal acquiree is a variable interest entity meeting the definition of a business.  

The amendments require entities to apply the same factors used in other acquisition transactions to identify the accounting acquirer. 

FASB chair Richard Jones said: “The new ASU is the first recommendation from the recently reconstituted EITF to be issued as a final standard, and we thank the group for providing a path forward in making financial reporting in this area more comparable and decision useful for investors.” 

Additionally, FASB is seeking public feedback on a proposed ASU that provides guidance on accounting for debt exchange transactions involving multiple creditors.  

The proposal, also recommended by the EITF, is open for stakeholder review and comment until 30 May 2025. 

Under current generally accepted accounting principles, entities must determine whether a modified or exchanged debt instrument should be treated as a modification of the existing obligation or as the issuance of a new one, with the old obligation extinguished.  

The proposed ASU clarifies that certain debt instrument exchanges should be recognised as the issuance of a new debt obligation and the extinguishment of the existing one. 

FASB believes this update will enhance the decision-usefulness of financial reporting by ensuring economically similar transactions are accounted for consistently.  

It also aims to reduce varied practices in accounting for such exchanges.