The Financial Accounting Standards Board (FASB) issued two new Accounting Standard Updates (ASUs) in the second quarter of 2025. The Government Accounting Standards Board (GASB) issued no new GASB statements in the second quarter of 2025. The latest issue of the Rundown features a summary of the new standards issued in the second quarter of 2025. For summaries of standards issued in previous periods, view our previous rundowns here. In addition, we’ve got a comprehensive listing of all standards newly effective for calendar year-end December 31, 2025, broken down by public business entities, private entities, and for June 30 and December 31 year-end governments.
Second Quarter 2025 Newly Issued Standards
Business Combinations: Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity (VIE)
In a business combination, determining the acquirer and acquiree is critical because only the acquiree’s net assets are remeasured at fair value (with certain exceptions), whereas the acquirer’s net assets remain at their carrying values. Interestingly, sometimes the legal acquirer is the acquiree for accounting purposes (aka, “reverse acquisition”). Generally, whenever an acquisition is primarily affected through cash, the determination is straightforward and the entity that pays cash is the acquiree. However, whenever an acquisition is primarily affected through the exchange of equity, it can sometimes be difficult to determine who is the accounting acquirer and acquiree.
For this reason, there is currently guidance to aid practitioners in determining who is the accounting acquiree (ASC 805-10-55-12 through 15). However, this guidance only applies to acquisitions that do not involve VIEs. Prior to this amendment, in a business combination involving a VIE, the primary beneficiary of the VIE was always the accounting acquirer. Stakeholders noted that this difference in treatment between combinations involving VIEs and those that do not, sometimes resulted in different accounting outcomes for economically similar transactions. As a result, in May 2025, the FASB issued ASU 2025-03 to improve comparability.
ASU 2025-03 requires entities involved in an acquisition primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider factors described in ASC 805-10-55-12 through 15 to determine which entity is the accounting acquirer. Under this new guidance, acquisitions where the legal acquiree is a VIE could be considered a reverse acquisition (the legal acquiree is the acquirer for accounting purposes) depending upon the analysis of the factors described in ASC 805-10-55-12 through 15.
This ASU is effective for all entities with annual reporting periods beginning after December 15, 2026. Early adoption is permitted.
Clarifications to Share-Based Consideration Payable to a Customer
Under ASC 606, Revenue from Contracts with Customers, consideration payable to a customer must be accounted for as a reduction of the transaction price, and therefore a reduction in revenue, unless the payment to the customer is in exchange for a distinct good or service provided by the customer to the entity. Consideration payable to a customer is generally in the form of cash or credit that can be applied against amounts owned. However, sometimes the consideration payable to a customer is in the form of share-based payments (e.g. shares or warrants).
Often, these share-based payments are variable and dependent upon the customer purchasing a specified volume or monetary amount. After the release of ASU 2014-09 (the ASU that created ASC 606), many stakeholders requested guidance on how to account for these share-based payments to customers and ASU 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share Based Consideration Payable to a Customer was issued. ASU 2019-08 clarified that consideration payable to a customer in the form of share-based payments should be accounted for under ASC 718, which previously only applied to share-based payments to employees and vendors, not customers. This clarification, however, caused additional diversity in practice primarily due to two causes:
- It wasn’t clear whether vesting based on the customer purchasing a specified volume or monetary amount of goods and services was a performance condition or not. This distinction is important because if viewed as a performance condition, then under ASC 718, entities are required to estimate forfeitures (i.e., failure to purchase the specified volume or monetary amount). However, if viewed as a service condition, then under ASC 718, entities can choose whether to estimate forfeitures or to recognize forfeitures as they occur. This could significantly impact revenue recognition.
For example, assume an entity contracts with a customer and offers the customer $1,000,000 worth of shares if the customer purchases 1,000 widgets over the next twelve months. Also assume that the share-based payment is not in exchange for distinct goods or services provided by the customer to the selling entity.
If the selling entity viewed the share-based payment as having a performance condition, then the entity would be required to estimate whether the customer was going to purchase 1,000 widgets or not. If the entity estimated that the customer would not purchase 1,000 widgets, then the revenue would not be reduced by $1,000,000 (remember payments to customers are a reduction in revenue). However, if the entity estimated that the customer would purchase 1,000 widgets, then revenue would be reduced by $1,000,000.
Alternatively, prior to ASU 2025-04, if the selling entity viewed the share-based payment as having only a service condition, then the entity would have a choice whether to estimate forfeitures or to recognize forfeitures as they occur. If the entity elected to estimate forfeitures and estimated that the customer would not purchase 1,000 widgets, then the revenue would not be reduced by $1,000,000. However, if the entity elected to account for forfeitures as they occur, then even if the entity did not believe the customer would purchase 1,000 widgets, revenue would be reduced by $1,000,000. After twelve months, if the customer failed to purchase 1,000 widgets, then the reduction in revenue would be reversed and an additional $1,000,000 in revenue would be recognized.
As you can see, because ASC 718 allows entities to choose to estimate forfeitures or account for them as they occur, two economically similar transactions could be accounted for drastically differently.
- Under ASC 606, variable consideration (including variable payments to customers that are not for distinct goods or services provided by that customer to the entity) is generally recognized, subject to the variable consideration constraint. Entities are required to estimate and recognize variable consideration if it is probable that a significant reversal of cumulative revenue recognized will not occur. However, under ASC 718, share-based payments with a performance condition are only recognized if it is probable that grantee will achieve the performance condition. The use of “probable” in both ASC 606 and ASC 718, on the surface, might lead one to believe that there is no contradiction. However, pay close attention to the direction of “probable.” Probable is generally interpreted to mean > 70% likelihood. If an entity estimates that it’s 70% likely a customer will achieve the performance condition, then under ASC 718 the share-based payment would be recognized, and under ASC 606 it would be probable that a significant reversal of revenue would not occur, and the variable consideration would also be recognized. No issue there. However, if the entity estimated that it is 51% likely a customer will achieve the performance condition, then under ASC 718 the share-based payment would not be However, under ASC 606, the entity would still have to conclude that it is not probable that there will be a significant reversal; thus the share-based payment would be recognized. This is because in order to be probable that there would be a significant reversal, the probability of the customer purchasing 1,000 widgets would have to be 30% or less. After ASU 2019-08 stakeholders questioned whether payments to customers in the form of share-based payments should follow the probability guidance of ASC 718 or ASC 606.
In May 2025, the FASB issued ASU 2025-04 to reduce this diversity in practice and clarified that:
- Vesting of share-based payments to customers based on the customer purchasing a specified volume or monetary amount of goods and services is a performance condition, not a service condition. In addition, solely for the purposes of accounting for share-based payments to customers, entities no longer have the choice to either estimate forfeitures or account for them as they occur. For share-based payments to employees and vendors, entities still have a choice to either estimate forfeitures or account for them as they occur.
- For variable share-based payments to customers with a performance condition, entities should apply the probability guidance in ASC 718, not the probability guidance in ASC 606 over variable consideration.
Effective Date: ASU 2025-04 is effective for all entities with annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. Therefore, for a public business entity with a calendar year-end, this ASU will take effect in the first quarter of 2027.
Early Adoption: Early adoption is permitted, and Cherry Bekaert highly recommends that entities early adopt.
Transition Guidance: Modified retrospective or full retrospective basis. An entity should apply the amendments as of the date of initial application to all share-based consideration payable to a customer that is unresolved.
Use of Hindsight: If an entity chooses to apply retrospectively, then that entity should use the actual outcome, if known as of the beginning of the annual reporting period of adoption for all prior-period estimates. If actual outcomes are unknown as of the beginning of the annual reporting period of adoption, an entity should use its estimate of the probability of achieving a service condition or performance condition as of the beginning of the annual reporting period of adoption for all prior-period estimates.
List of Newly Effective Standards
Calendar Year-end Public Companies
The following ASUs are effective for public companies for calendar year 2025:
- ASU 2018-12 (as amended by 2020-11): Targeted Improvements to the Accounting for Long-Duration Contracts FN1 FN2
- ASU 2022-05: Transition for Sold Contracts FN1 FN2
- ASU 2023-05: Recognition and Initial Measurement of Joint Ventures FN1
- ASU 2023-08: Accounting for and Disclosure of Crypto Assets FN1
- ASU 2023-09: Improvements to Income Tax Disclosures
- ASU 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards FN1
FN1 – Effective for smaller reporting companies (SRCs)
FN2 – Including interim periods within those fiscal years (e.g., Q1 2025 for calendar year-end public entities)
Calendar Year-end Private Companies
The following ASUs are effective for private companies for calendar year 2025:
- ASU 2018-12 (as amended by 2020-11): Targeted Improvements to the Accounting for Long-Duration Contracts
- ASU 2022-05: Transition for Sold Contracts
- ASU 2023-02: Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
- ASU 2022-03: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
- ASU 2023-05: Recognition and Initial Measurement of Joint Ventures
- ASU 2023-08: Accounting for and Disclosure of Crypto Assets
Governmental Entities
As a reminder, the following GASB is effective for governmental entities for the upcoming fiscal year ending on June 30, 2025, and the year-end on December 31, 2025:
