Is Pushdown Accounting Lifting You Up?

• Author: Kang Cheng,Rasha M. Elbolok
• DOI: http://doi.org/10.1002/jcaf.22080
• Published date: 01 September 2015
• Date: 01 September 2015

55

© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22080

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Is Pushdown Accounting Lifting You Up?

Kang Cheng and Rasha M. Elbolok

ASU NO. 2014-17

CHANGES THE

THRESHOLD TO

CONTROL

When one com-

pany is acquired by

another company,

should the acquiree

keep its financial

statements at its

original accounting

basis for the consis-

tence, or, to assume

the acquirer’s new

accounting basis

for the acquirer’s

accounting con-

venience? In other

words, should the

acquirer push down

the accounting basis

to streamline two sets of finan-

cial statements to the one set

from the acquirer’s viewpoint?

By allowing an optional “push

down” accounting treatment,

the FASB drops the ball to the

reporting entity’s court. Push

down accounting potentially

imposes dramatic changes to

the acquiree’s separate financial

statements. From the reporting

entity’s viewpoint, it is neces-

sary to keep in mind that the

choice to streamline with the

acquirer’s accounting basis

impacts all statement users.

While the acquirer enjoys the

accounting convenience, other

statement users still deserve

a faithful presentation of the

underlying economic condition.

On November 18, 2014,

the Financial Accounting

Standards Board (FASB)

issued Accounting Standards

Update (ASU) No. 2014-17,

Business Combination (Topic

805): Pushdown Accounting, a

Consensus of the FASB Emerg-

ing Issues Task Force. Before

this Update, the use of “push-

down” accounting to account

for business combinations was

prohibited under

certain circumstances

and required under

the others. The

Update not only

gives guidelines on

the treatments of

pushdown account-

ing but also stream-

lines the application

of such accounting

practice. This article

addresses issues on

pushdown account-

ing; specifically, it

addresses the new

guidelines by con-

trasting with the

existing practices,

and discusses consid-

erations and strate-

gies on how to handle this new

accounting standard.

PUSHDOWN ACCOUNTING,

THE UPDATE, AND PREVIOUS

PRACTICE

ASU No. 2014-17 defines

pushdown accounting as “the

use of acquirer’s basis in the

preparation of the acquiree’s

separate financial state-

ments.” In other words, a new

accounting basis is established

for the acquiree that reflects

the acquirer’s costs as of the

acquisition date. For example,

In this article, the authors provide a review of

the Financial Accounting Standards Board (FASB)

Accounting Standards Update (ASU) No. 2014-17,

Business Combination (Topic 805): Pushdown

Accounting, a Consensus of the FASB Emerging

Issues Task Force. This article addresses issues

on “pushdown” accounting by contrasting the

new guidelines with the existing practices, and

discusses considerations and strategies on how

to handle this new accounting standard. Before

this Update, the use of “pushdown” accounting

to account for business combinations was pro-

hibited under certain circumstances and required

under the others. The Update not only gives guide-

lines on the treatments of pushdown account-

ing but also streamlines the application of such

accountingpractice. © 2015 Wiley Periodicals, Inc.