The Financial Accounting Standards Board has published a new rule that seeks to clarify whether and at what threshold an acquired business or nonprofit organization can apply the pushdown accounting method.
When a company is acquired, pushdown accounting allows the acquired entity to use the acquirer’s basis of accounting to reflect the purchase costs of the acquirer in its financial statements rather than its historical costs.
Under the new rule published Tuesday, an acquired entity may choose to apply pushdown accounting in the reporting period in which the “change-in-control event” occurs.
“An acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control event in which an acquirer obtains control of the acquired entity,” the rule states. “If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event.”
The rule also requires companies that use pushdown accounting to “disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting.”
FASB noted that current GAAP “offers limited guidance for determining whether and at what threshold pushdown accounting should be established in an acquired entity’s separate financial statements” and in the absence of that guidance, companies, including some not registered with the U.S. Securities and Exchange Commission, have been turning to the SEC staff guidance on pushdown accounting.
The new rule, FASB said, provides guidance for all companies, registered with the SEC or not, and is consistent with the SEC’s threshold for change-in-control events, reducing “the complexity that some stakeholders said exists under the current pushdown accounting practices.”
For its part, the SEC on Tuesday rescinded portions of its interpretive guidance for pushdown accounting, bringing its guidance into conformity with the new FASB standard.
Source: Journal of Accountancy
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