FASB and SEC Release Guidance on Pushdown Accounting
The Financial Accounting Standards Board and the Securities and Exchange Commission have issued new guidance on so-called “pushdown accounting,” which occurs when an acquired organization uses the acquirer’s basis of accounting to prepare its financial statements.
The FASB guidance, in the form of Accounting Standards Update No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting, is a consensus of FASB’s Emerging Issues Task Force. The update provides guidance on whether and at what threshold an acquired business or not-for-profit organization can apply pushdown accounting.
The guidance also gives an acquired business the option to apply pushdown accounting in its separate financial statements when an acquirer obtains control of the acquired business. It requires disclosures (similar to the disclosures provided by an acquirer under Topic 805, Business Combinations) that enable users of financial statements to better evaluate the effects of pushdown accounting.
FASB said Tuesday it issued the update to address the lack of guidance in GAAP for this topic, resulting in a lack of comparability among public, private, and not-for-profit organizations.
Also on Tuesday, the Securities and Exchange Commission’s Office of the Chief Accountant and Division of Corporation Finance released a Staff Accounting Bulletin to rescind portions of the interpretive guidance included in its SAB Series for what’s known as pushdown accounting.
To reflect private sector developments in U.S. GAAP, the SEC’s Staff Accounting Bulletin No. 115 rescinds SAB Topic 5.J. New Basis of Accounting Required in Certain Circumstances. The new bulletin brings existing guidance into conformity with Accounting Standards Update No. 2014-17 Business Combinations (Topic 805): Pushdown Accounting, a consensus of the FASB Emerging Issues Task Force, which was ratified by the Financial Accounting Standards Board (FASB) on Oct 8, 2014.
The statements in SABs are not rules or interpretations of the Commission nor are they published as bearing the Commission’s official approval, the SEC pointed out. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.
Under the old guidance, when SAB Topic 5.J was issued on Nov. 3, 1983, it expressed the staff’s views regarding the application of the “push down” basis of accounting in the separate financial statements of entities acquired in purchase transactions. SAB Topic 5.J indicated that when a purchase transaction results in an entity becoming substantially wholly owned, a new basis of accounting should be established in the acquired entity’s financial statements to reflect the acquirer’s basis in the purchased assets and liabilities.
Under the new guidance, reflecting the FASB update, the SEC noted that the guidance in ASU No. 2014-17 provides an option to apply pushdown accounting in the separate financial statements of an acquired entity upon the occurrence of an event in which an acquirer obtains control of the acquired entity.
ASU No. 2014-17 affects the stand-alone financial statements of an acquired entity (subsidiary), but the SEC noted that it does not change the requirement for an acquirer (parent) to apply business combination accounting and record its new basis in the acquired entity’s assets, liabilities, and non-controlling interests in the acquirer’s consolidated financial statements. The change will facilitate the financial community’s transition to the new guidance by providing timely communication of the staff’s views with regards to the continuing applicability of its historical interpretive guidance on pushdown accounting.