Accounting Challenges Lurk Behind The M&A Rebound

A version of this article first appeared in Accounting Today. Mergers and acquisitions in the broader economy are on the rise. After a period of relative quiet, the average M&A deal size grew to $544 million — its highest level in five years — signaling renewed confidence from both buyers and sellers.

At the same time, SPAC activity is showing signs of revival after experiencing a prolonged lull, with 63% of total IPOs in 2025 classifying as special purpose acquisition companies (up from 43% in all of 2024). Together, these dynamics are shifting the deal landscape and prompting organizations to take a closer look at how they approach complex transactions.

Now more than ever, finance leaders cannot let accounting standards fall by the wayside. While technical issues such as contingent consideration, transaction costs and purchase price allocation valuations are evergreen, today's environment raises fresh challenges. The resurgence of SPACs, the nuances of distinguishing asset acquisitions from business combinations, and the ongoing struggle to align accounting policies across merged entities are at the forefront. Addressing both new and persistent hurdles will be critical for companies seeking to successfully navigate disruptive events without missteps in financial reporting.

Navigating today's regulatory changes

With deal-making picking up speed, accountants should be hyper-aware of guidance related to accounting areas that require significant judgment and impact how transactions are presented in financial statements. If financial reporting teams are not aware of or misinterpret the guidance, it can result in last-minute changes to the accounting for these transactions, which is an unwelcome challenge for financial statement preparers.

For example, one challenging area of guidance with recent changes is in the variable interest entities guidance, which is especially relevant for SPAC-related accounting. Previously, in cases where a SPAC target (acquiree) may have met the definition of a VIE, the prior guidance would prevent the de-SPAC transaction from being accounted for as a reverse acquisition, which is the preferable presentation of these transactions, as it maintains the historical basis of the operating company in a de-SPAC transaction. Under recently updated guidance, however, when an acquisition is achieved through an exchange of equity interests, preparers must instead look to qualitative criteria in ASC 805-10-55-12 through 15, regardless of the VIE status of each entity.

At the same time, the SEC's 2024 rule changes have raised the bar for disclosure and accountability for SPACs. Sponsors and participants now face increased disclosure requirements, incremental legal liabilities and rules designed to align de-SPAC transactions more closely with traditional IPO disclosures. Collectively, these developments heighten both the complexity and the risk associated with SPAC transactions, underscoring the importance of careful preparation within accounting departments.

A further area calling for significant judgment is related to the "screen test" guidance issued in 2017, which gave guidance determining whether a deal qualifies as an asset acquisition or business combination continues to provoke discussion. In practice, this guidance has introduced another layer of judgment that can result in incremental effort to complete the accounting. Given the extensive differences in accounting outcomes, the Financial Accounting Standards Board is currently considering whether greater alignment between the two treatments is warranted.

Seasoned accountants know those differences are not trivial. For finance leaders navigating today's high-volume deal environment, the inconsistencies between asset acquisitions and business combinations can create significant reporting and operational complexity, making it all the more critical to stay current on evolving interpretations.

The challenges that persist

New rules bring constant change to the deal-making environment, but certain challenges never go away. One of the biggest evergreen hurdles is conforming accounting policies between the acquirer and acquiree. Take revenue recognition, for example: When a software company acquires a business with a SaaS offering, it must take a hard look at the acquiree's historical conclusions to confirm their accuracy and alignment with its own policies. That often means revisiting the identification of performance obligations.

For instance, if the acquiree resells SaaS services rather than delivering them directly, the acquirer has to decide whether revenue should be recognized on a net basis (since the acquiree acts as an agent) or over time (if the combined offering delivers something new). Beyond the technical call, the operational lift can be heavy, requiring new fair value measurements, reconfigured billing processes, and retaining talent to account for and standardize practices between the acquirer and acquiree. Companies that address these questions early, ideally during diligence, can avoid costly surprises and provide integration teams the clarity they need from day one.

Other policy alignment issues are equally thorny. Inventory accounting can require adjustments to step up balances to fair value (sales price less costs to sell) rather than the lower-of-cost or market measures previously applied. These changes can have an immediate impact on reported gross margins, and if they're not anticipated, may complicate earnings forecasts. Similarly, differences in accounting for pensions, accruals or stock compensation can ripple across the combined company's financial statements. Building a "policy conformity playbook" that documents standard approaches to areas like inventory, deferred taxes and contingencies helps streamline these evaluations and minimizes deal-by-deal debates.

Staying ahead in a changing M&A market

Accounting leaders sit at the helm of M&A's return to prominence. With the resurgence of SPACs and evolving regulatory guidance adding fresh layers of complexity, perennial issues like revenue recognition, policy conformity and inventory treatment remain only part of the equation.

In periods of heightened M&A, the ability to anticipate both operational and technical issues and address them proactively is what separates smooth integrations from disruptive ones. By keeping pace with new standards while also mastering the fundamentals, finance teams can provide the clarity and consistency needed to help transactions achieve their full potential.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.