By: Art Winstead, Member of NCACPA’s Board of Directors and A&A Committee
“Pushdown” accounting has been an accounting principle that has been misunderstood as to when, to whom, and how it should be applied. “Pushdown” accounting is the practice of adjusting the standalone financial statements of an acquired entity to reflect the basis of accounting of the buyer.The basis of accounting that the buyer has applied is recording the fair value of the acquired entity on the buyer’s financial statements.
Our current codification guidance applicable to pushdown accounting is currently only applicable to SEC registrants. FASB has issued this proposed Accounting Standards Update (ASU) due to the diversity in practice regarding the application of pushdown accounting for entities that are not SEC registrants.
This ASU is the consensus of FASB’s Emerging Issues Task Force. It was issued on April 28, 2014, and the comment deadline is July 31, 2014. Here are some more details of this ASU:
- The objective: “Provide guidance on when and how the acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements.”
- The ASU would apply to the separate financial statements of an acquired entity, both public and nonpublic that is a business or nonprofit activity.
- The proposed guidance will allow an acquired entity with the option to apply pushdown accounting in its separate financial statements upon the occurrence of an event in which an acquirer obtains control of the acquired entity.
- The option to apply pushdown accounting would be evaluated and may be elected by the acquired entity for each individual change-in-control event in which an acquirer obtains control of the acquired entity.
If the acquired entity elects the option to apply pushdown accounting, it would reflect (in its separate financial statements) the new basis of accounting established by the acquirer for the individual assets and liabilities of the acquired entity by applying Topic 805, Business Combinations. If the acquired entity does not elect the option to apply pushdown accounting in its separate financial statements, it would disclose in the current reporting period that the entity has (1) undergone a change-in-control event whereby an acquirer has obtained control of the entity during the reporting period and (2) elected to continue to prepare its financial statements using its historical basis that existed before the acquirer obtained control of the entity.
Due to the absence of specific guidance in U.S. GAAP, FASB believes “entities (including non-SEC registrants) currently use the SEC staff guidance to determine when and how they should apply pushdown accounting in their separate financial statements, which has led to diversity and other practice issues. FASB further believes this proposed ASU will provide specific guidance on pushdown accounting for all entities and provide a threshold for pushdown accounting is consistent with the threshold for change-in-control events in Topic 805 and Topic 810, Consolidation, and therefore, would reduce the complexity that some stakeholders said exists under the current pushdown guidance.
The comment period is open until July 31—members can respond to the Exposure Draft and inform FASB whether or not they are in agreement with the proposed standard by visiting to www.fasb.org.
Art Winstead is a native of Greensboro, NC—he graduated from Grimsley Senior High School, and attended the University of South Carolina, earning his B.S. in Business (with a concentration in Accounting and a minor in Political Science) at the University of North Carolina—Greensboro. Art is also a Certified Fraud Examiner (CFE), Certified Financial Forensic (CFF), and holds the designation of Chartered Global Management Accountant (CGMA). He is a member of AICPA and is a member of NCACPA’s Board of Directors. Art has served on the State Mobility and Regulatory Response Committees of the National Association of State Boards of Accountancy (NASBA) and currently serves on the Global Standards Committee.