December 16, 2024
FASB
Technical Director
801 Main Avenue
PO Box 5116
Norwalk, CT 06856-5116.
Sent via email to [email protected]
File Reference No. 2024-ED500
RE: Proposed Accounting Standards Update — Business Combinations (Topic 805) and Consolidation (Topic 810)
Dear Technical Director:
The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee (Committee) has reviewed the Proposed Accounting Standards Update — Business Combinations (Topic 805) and Consolidation (Topic 810). The VSCPA is the leading professional association in the Commonwealth of Virginia dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of nearly 12,000 individual members who actively work in public accounting, private industry, government, and education.
The Committee supports the Board's objective of clarifying the determination of the accounting acquirer is in a transaction effected primarily by exchanging equity interests, in which the legal acquiree is a variable-interest entity (VIE) that satisfies the definition of a business. Responses to specific questions are contained in the attachment to this letter.
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The VSCPA appreciates the opportunity to respond to this ED. Please direct any questions or concerns to VSCPA Vice President, Advocacy & Pipeline Emily Walker, CAE, at [email protected] or (804) 612- 9428.
Sincerely,
Michael Phillips, CPA
Chair 2024-2025
VSCPA Accounting & Auditing Advisory Committee
VSCPA Accounting & Auditing Advisory Committee 2024-2025
Michael Phillips, CPA —Chair
Daniel Martin, CPA — Vice Chair
Zach Borgerding, CPA
Joshua Keene, CPA
Nick Kinsler, CPA
Brian Minor, CPA
Elisa Obillo, CPA
Krisia Raya, CPA
Charles Valadez, CPA
Natalya Yashina, CPA
Attachment — Responses to Specific Questions
Question 1: Do you agree with the amendments in this proposed Update that would require entities involved in acquisition transactions effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider the factors in paragraphs 805-10-55-12 through 55-15 to determine which entity is the accounting acquirer? Would the proposed amendments provide decision-useful information and improve comparability? Are the proposed amendments clear and operable? Please explain why or why not.
Yes, we concur that entities involved in acquisition transactions effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business should consider the factors in paragraphs 805- 10-55-12 through 805-10-55-15 to determine which entity is the accounting acquirer.
The current accounting guidance in Topic 805, as referenced, requires that when a VIE is acquired in a business combination, the primary beneficiary of that entity is always the accounting acquirer. Additionally, if the legal acquiree is a VIE, under the current guidance the transaction cannot be accounted for as a reverse acquisition, and uncertainty exists as to whether a business combination has occurred. This creates diversity in practice and can impact the comparability of financial statements for similar transactions.
Considering the proposed amendments would provide comparable accounting treatment for acquisition transactions with similar economics, we believe comparability would be improved. Nevertheless, whether the financial statements provide information relevant to decision-making will ultimately be decided by the users of the financial statements.
Moreover, the proposed amendments are not only clear but also operable. They effectively direct financial statement users to the existing guidelines in Topic 805. We believe these revisions will foster consistency in financial reporting and provide financial statement users with more useful information by reducing variability in practice and clearly defining the applicable guidance for these types of acquisitions.
Question 2: The proposed transition requirements would require entities to apply the proposed amendments on a prospective basis. Are the proposed transition requirements operable? If not, why not and what transition method would be more appropriate and why?
Yes, we believe the proposed transition method is operable and practical. We believe that an entity should apply this guidance prospectively to acquisition transactions primarily carried out by exchanging equity interests when the legal acquiree is a VIE that fits the definition of a business for all business combinations whose acquisition date falls on or after the date the proposed amendments are adopted. This provides users of the financial statements with pertinent and valuable information related to the types of acquisition transactions mentioned above. Further, implementing other transition methods, including the retrospective transition method, would be challenging and complex. Historical accounting records and fair value data would be required to complete such a transition and adjust one or more subsequent accounting periods, depending on when the acquisition transpired.
Question 3: How much time would be needed to implement the proposed amendments? Should the effective date for entities other than public business entities be different from the effective date for public business entities? Please explain why or why not.
Considering the proposed amendments would require organizations to follow the current guidance under Topic 805, which should not result in significant implementation costs, we believe that the effective date can be the same for both public and private business entities.
Generally, it is beneficial for private business entities to have more time to apply the transition changes and benefit from the interpretations of public business entities, which are typically ahead of the application of proposed amendments. However, considering the proposed amendments are currently used in practice for other acquisition transactions, we do not believe alternative effective dates are necessary.
Question 4: The proposed amendments would permit early adoption. If an entity early adopts the proposed amendments, should the entity be required to adopt those amendments as of the beginning of an annual reporting period? Please explain why or why not.
We believe that entities should be required to adopt the amendments at the beginning of the annual reporting period if they choose to adopt the proposed guidance early. This would improve the comparability and usefulness of financial statements.