A.1 Overview of Pushdown Accounting
When an entity obtains control of a business, a new basis of accounting is
established in the acquirer’s financial statements for the assets acquired and
liabilities assumed. ASC 805-10, ASC 805-20, and ASC 805-30 provide guidance on
accounting for an acquisition of a business in the acquirer’s consolidated financial
statements. Sometimes the acquiree will prepare separate financial statements after
its acquisition. An acquiree in a business combination has the option of whether to
use the parent’s basis of accounting or the acquiree’s historical carrying amounts
for the assets acquired and liabilities assumed in the acquiree’s separate financial
statements. Use of the acquirer’s basis of accounting in the preparation of an
acquiree’s separate financial statements is called “pushdown accounting.”
Under previous guidance, entities applied the pushdown accounting guidance in SAB Topic 5.J, EITF Topic D-97, and comments made by the SEC observer at EITF meetings. In addition, certain accounting practices developed on the basis of SEC staff speeches; the AICPA’s October 30, 1979, issues paper on pushdown accounting; and the FASB’s December 18, 1991, discussion memorandum on this topic. However, such guidance was complicated and incomplete, only applied to SEC registrants, and was based on bright lines that provided opportunities for structuring and misapplication. To address those concerns, the FASB issued ASU 2014-17, which gave an acquiree the option to apply pushdown accounting in its separate financial statements when it has undergone a change in control.
ASU 2014-17 became effective on November 18, 2014, its date of issuance. The guidance in ASU 2014-17 was codified in the ”Pushdown Accounting” subsections of ASC 805-50. An acquiree may elect to apply that guidance to (1) any future transaction or event in which an acquirer obtains control of the acquiree or (2) a past transaction or event in which an acquirer obtains control of the acquiree “when the financial statements of the reporting period that contains the acquisition date have not been issued” (conduit bond obligors or SEC filers) or have not been made available to be issued (all other entities). If the financial statements for the period that includes the most recent event in which an acquirer obtained control of the acquiree already have been issued or made available to be issued, the entity may still apply pushdown accounting; however, in such cases, the event must be accounted for as a change in accounting principle.
In response to the issuance of ASU 2014-17, the SEC staff issued SAB 115 to rescind the guidance in SAB Topic 5.J, and the FASB issued ASU 2015-08 to rescind the remaining guidance on pushdown accounting and collaborative groups in ASC 805-50-S99. As a result, all authoritative guidance related to the application of pushdown accounting is now in the “Pushdown Accounting” subsections of ASC 805-50.