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FASB Proposes Clean Up for Newly Acquired Entities

Tammy Whitehouse | May 6, 2014

Accounting approaches at newly acquired companies can vary somewhat even when companies are trying to apply existing accounting rules, prompting the Financial Accounting Standards Board to propose some changes.

FASB has issued an exposure draft to spell out some new requirements for “pushdown accounting,” or the establishment of a new accounting basis for a target company after an acquisition when the acquired company will continue to publish its own financial statements. Companies following existing accounting guidance contained in Accounting Standards Codification Topic 805-50 regarding business combinations have developed different practices because the guidance is limited, FASB says. FASB's proposed update is intended to spell out when and where an acquired business entity would apply pushdown accounting it its separate financial statements, FASB says.

FASB's proposed update would give the acquired entity an option to apply pushdown accounting in its separate financial statements when specific events occur that give the acquiring entity control over the acquired entity. The proposed guidance tells companies to apply existing business combinations guidance to the individual assets and liabilities in its separate financial statements if it elects pushdown accounting. If the entity elects not to apply pushdown accounting, it still would be required to reflect how the accounting would look if it had elected pushdown accounting. The proposal also explains how to address any goodwill that would result from applying business combinations guidance.

According to FASB, its proposal would provide more specific guidance on pushdown accounting than currently exists, and it would apply to all entities, creating comparability across public, private and not-for-profit entities. Currently, the guidance from the Securities and Exchange Commission contained in the Codification applies only to publicly traded entities. FASB says the threshold for pushdown accounting in its proposal also is consistent with the threshold for change-in-control events under accounting guidance for business combinations and consolidations, producing greater consistency in the rules that reduces overall complexity in applying them.

FASB is accepting comments on the proposal, which was developed and recommended by the board's Emerging Issues Task Force, by July 31.