Pushdown Accounting to Be Optional

Published date01 March 2015
DOIhttp://doi.org/10.1002/jcaf.22033
Date01 March 2015
45
© 2015 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22033
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FASB
Oscar J. Holzmann and Paul Munter
Pushdown Accounting to Be Optional
After more than two years
of deliberations, the Emerg-
ing Issues Task Force (EITF)
reached a consensus, and the
Financial Accounting Stan-
dards Board (FASB) endorsed
a standard that will permit enti-
ties to elect to either use or not
use pushdown accounting each
time there has been a change in
control over the entity. Push-
down accounting results in
applying the acquirer’s basis
in a newly acquired entity in
the financial statements of the
acquiree.
Prior to the new Account-
ing Standards Update (ASU),
there was limited guidance on
when pushdown accounting
should be applied other than
guidance by the Securities and
Exchange Commission (SEC)
that was applicable to SEC
registrants but not to privately
held entities resulting in diver-
sity in practice, particularly
among private entities. Of
course, because the new FASB
standard is elective, it will not
reduce the existing diversity in
practice among private entities
and would result in additional
diversity in practice among
SEC registrants.
PREVIOUS GUIDANCE ON
PUSHDOWN ACCOUNTING
In Staff Accounting Bulletin
(SAB) Topic 5.J, the SEC staff
expressed its view that push-
down accounting was required
to be applied by an SEC regis-
trant when the entity became
“substantially wholly owned.”
1
SAB Topic 5.J further explained
that in situations where the
acquiree was not substantially
wholly owned, “the staff recog-
nizes that the existence of out-
standing public debt, preferred
stock or a significant noncon-
trolling interest in a subsidiary
might impact the parent’s ability
to control the form of owner-
ship. Although encouraging its
use, the staff generally does not
insist on the application of push
down accounting in these
circumstances.”
The SEC staff later stated
that in applying the guidance
of SAB Topic 5.J, pushdown
accounting was required in cir-
cumstances where 95% or more
of the entity’s ownership interest
is acquired. If 80% to 95% of its
ownership interest was acquired,
then pushdown was permitted
but not required, and if less than
80% of its ownership interest
was acquired, then pushdown
accounting generally was pro-
hibited.
2 Additionally, the SEC
staff introduced the concept of
a collaborative group in evaluat-
ing what portion of an entity’s
ownership interest had been
acquired. A collaborative group
is defined as a group of investors
that “both ‘mutually promote’
the acquisition and ‘collaborate’
on the subsequent control of
the investee company.” The SEC
staff provided a list of indica-
tors that should be considered in
determining whether the rebut-
table presumption is overcome,
but the evaluation nevertheless
involved significant judgment in
many cases.
CONSEQUENCES OF SEC
GUIDANCE
Because the SEC guid-
ance was applicable only to
SEC registrants, application
of pushdown accounting was
mixed among private entities.
This created a problem when a
private company that had been
previously acquired wanted to
“go public.” When that private
company filed its registration

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