On November 18, FASB issued Accounting Standards Update (ASU) 2014-17, Business Combinations (Topic 805): Pushdown Accounting, while the SEC simultaneously rescinded its guidance on the subject, called SAB Topic 5J.
The latest ASU gives an acquired entity the option to apply pushdown accounting* when there is a change-of-control event.
Significance of the New Standard
The ASU is significant because it makes pushdown accounting optional for the acquired entity when there is a change of control. The old SEC guidance did not allow pushdown accounting until the acquirer owned at least 80% of the acquired company, and it generally required pushdown accounting when the acquirer owned more than a 95% stake.
Acquired companies that choose pushdown accounting must disclose information that enables users of their financial statements to evaluate its effect. These disclosures are similar to the ones provided by an acquirer for a business combination and include information such as the date of the acquisition, the name of the acquiring entity and more.
Note that an acquirer still must apply business combination accounting and record in its consolidated financial statements its new basis in the acquired entity's assets, liabilities and non-controlling interests.
Implementation of the New Standard
The ASU is effective immediately, as of November 18, 2014, and applies to public and private companies, as well as nonprofits. For additional information on the new standard, or to learn more about how it could affect your financial statements, don't hesitate to reach out.
*Pushdown accounting occurs when an acquired company uses the acquirer's accounting and reporting basis to prepare its standalone financial statements.
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