A.3 Option to Apply Pushdown Accounting Upon a Change in Control

An acquiree can elect to apply pushdown accounting in its separate financial statements each time another entity or individual obtains control of it. The decision of whether to apply pushdown accounting upon a change in control is not an accounting policy election. For example, an acquiree may elect to apply pushdown accounting upon its acquisition in one year and, if it is acquired again in a subsequent year, may elect not to apply pushdown accounting at that time. An acquiree that elects to apply pushdown accounting must do so in its separate financial statements as of the date on which the acquirer obtains control of the acquiree (i.e., the acquisition date). ASC 805-10-25-6 and 25-7 provide guidance on identifying the acquisition date.

The term “control” is used in both the business combinations guidance and the pushdown accounting guidance and has the same meaning as the term “controlling financial interest” in ASC 810-10. ASC 810-10 indicates that a controlling financial interest generally results when one entity obtains, either directly or indirectly, more than 50 percent of the outstanding shares of another entity. However, control can also be obtained in other ways, such as through a contractual arrangement or when an entity becomes the primary beneficiary of a VIE. See Deloitte’s Roadmap Consolidation — Identifying a Controlling Financial Interest for more information about determining whether an acquiree has undergone a change in control.

As noted in the Background Information and Basis for Conclusions of ASU 2014-17, the Task Force considered whether pushdown accounting should be required or optional. The Task Force ultimately decided that requiring pushdown accounting may not be beneficial for some users and could be costly for preparers, since such a requirement would cause many more entities to apply pushdown accounting and may result in more frequent application of pushdown accounting by the same entity. The Task Force also noted that users’ views on the benefits and relevance of pushdown accounting differed, with some indicating that they “prefer not to distort historical trends by establishing a new basis of accounting for each change-in-control event” and others stressing that they “would prefer a new basis and consider an [acquiree’s] financial information in the context of its parent.” The Task Force acknowledged that giving entities an option reduces comparability in this area but decided that “allowing entities to apply judgment on the basis of their unique set of facts and circumstances” was more important than achieving such comparability. Before deciding whether to elect pushdown accounting, entities should consider the information needs and preferences of their financial statement users. When pushdown accounting is not elected, no adjustment is made to the acquiree’s financial records in connection with the acquisition. Therefore, in such cases, the acquiree will need to maintain accounting records that are separate from those of the parent to track items such as depreciation and amortization and will need to perform separate impairment analyses. It will be more difficult to maintain two sets of accounting records if multiple entities are acquired at different times. However, entities may prefer to carry over the acquiree’s historical basis for financial reporting purposes if carryover basis is being used for tax reporting purposes (i.e., when there is no tax “step-up”). Thus, entities should consider the burden of record keeping and their particular facts and circumstances when deciding whether to apply pushdown accounting.