The Financial Accounting Standards Board has issued a proposed accounting standards update on “pushdown accounting” from FASB’s Emerging Issues Task Force.
The update would be part of the business combination standards collected under Topic 805 of the FASB Accounting Standards Codification. Under current U.S. GAAP, there is limited guidance for determining whether and when a new accounting and reporting basis, referred to as “pushdown accounting,” should be established in an acquired entity’s separate financial statements. There has been some guidance for SEC-registered companies in an SEC Staff Accounting Bulletin and in comments made by an SEC observer at meetings of the Emerging Issues Task Force, but because the SEC staff’s guidance is generally applicable mostly to public companies, the EITF was concerned there might be different ways to apply pushdown accounting among entities that are not SEC registrants and even among the SEC registrants as well.
The objective of the proposed update is to provide guidance on when and how an acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements. The proposed amendments would provide an acquired entity with an option to apply pushdown accounting in its separate financial statements when an acquirer obtains control of the acquired entity. The option to apply pushdown accounting would be evaluated and could be elected by the acquired entity for each individual change-in-control event in which an acquirer obtains control of the acquired entity.
The amendments in the proposed update would apply to the separate financial statements of an acquired entity, both public and nonpublic, that is a business or nonprofit activity, upon the occurrence of an event in which an acquirer obtains control of the acquired entity. The recognition and measurement provisions are elective, but to comply with the disclosure provisions, an entity would be required to assess at each reporting date whether an acquirer has obtained control of the entity since its last reporting date.
FASB is asking for comments on the exposure draft by July 31.
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