Pushdown accounting is the reflection of the fair value of assets acquired and liabilities assumed in a business acquisition to the acquired entity’s financial statements. The FASB recently issued literature (ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force) that is effective immediately and allows the option of pushdown accounting when a private or public company has had a change-in-control. Previously, pushdown accounting was addressed only in SEC staff guidance and required restrictive percentages of control change for its application to the financial statements of acquired entities.
The alternative to pushdown accounting is the historical cost basis that remains a very viable alternative for acquired entities that have no practical purpose for a pushdown accounting financial statement presentation after a change-in-control event. The complexities of some change-in-control transactions and their presentation results under the two methods should be anticipated when electing pushdown accounting or a historical cost basis presentation.
It is important for the needs of the financial statement users of an acquired company to be considered in deciding whether to use pushdown accounting or continue to report on a historical cost basis. The financial statement measurements required by contractual agreements and the cost-benefit considerations of maintaining different accounting bases for tax reporting, domestic financial statement reporting and foreign group reporting requirements should all be considered when deciding whether to apply pushdown accounting or the historical cost basis to the financial statements of an acquired entity.
ASU 2014-17 is effective immediately for all financial statements including those not yet issued. It can be applied retroactively to financial statements issued as a change in accounting policy to the most recent change-in-control event. Adoptions of pushdown accounting cannot be reversed.
