Week 2 Discussion Post 11 Document

A controlling financial interest is a financial interest that is made up of more than 50% of the

outstanding stock. A controlling financial interest gives the owner of it a majority say/ voting

rights. In other words, if you had the controlling financial interest in a company, you would

always have the majority vote.

According to Daniel Liberto on investopedia.com, "Pushdown accounting was formerly

mandatory when the parent acquired at least 95% ownership of another company. If the stake

ranged between 80% to 95%, pushdown accounting was an option. If the stake was smaller, it

was not permitted" (Liberto, D. 2021). Recently, however, this has changed. Since 2014, the

percent rule has been eliminated and push down accounting was made optional for companies

depreciation expense" (Push-Down Accounting, 2021). Thus, it is important to consider how

the revaluation will affect the income statement trends. If it is drastic, you would need to

consider then how that will play into the future and decide if it is worth it.

A controlling financial interest is an investment with 50% or more of the equity within an

entity (Jones, 2018). However, an individual may become a controlling interest without

obtaining 50% ownership if they own a significant portion of the company's voting shares.

This means the shareholder has significant influence over the company's actions. This is

advantageous because a shareholder can make their voice heard during important decision-

making processes. Having a controlling financial interest also increases leverage in case of a

merger or acquisition (Smith, 2021).

Pushdown accounting reflects a company's purchase of another by "writing up" or "writing

down" the purchased company's assets and liabilities. It is based on the purchase price, rather

than the historical cost of the company. The amount paid to purchase said company becomes

its new book value on its financial statements. Gains or losses that come from this value are

"pushed down" to the new company's income statement and balance sheet. Pushdown

accounting can be thought of as using "borrowed money" to create the new company, as the

assets and debts from the purchased company are part of the new subsidiary (Liberto, 2021).

purchased company was acquired (Newth, 2022). The parent company must consider the

monetary benefits to this method prior to election.

company plus one. However, a person or group can achieve a controlling interest with less

than 50% ownership in a company if that person or group owns a significant portion of its

voting shares, as not every share carries a vote in shareholder meetings." (Smith, 2021) This

concept can be described as exactly how it looks and sounds, you control the financial interest

of a company. You can do this by holding the majority shares of a company outright (yourself

that company. One can also hold controlling financial interest of a company through

subsidiaries as long as their shares total to be a controlling interest.

Pushdown accounting is defined in the book as "at least 50% of the outstanding shares of a

given company plus one. However, a person or group can achieve a controlling interest with

less than 50% ownership in a company if that person or group owns a significant portion of its

voting shares, as not every share carries a vote in shareholder meetings." (Christensen, et al.

2019) This is optional, and not required, for all subsidiaries that file with the SEC separately

from their Parent company's consolidated financial statements. This can only be elected

during the first year of acquisition, from the acquisition date forward.

important prior to electing to to apply pushdown accounting. You may think that the financial

statements should read one way, as your preferred method, but that may not be what the

company you just acquired prefers. Getting together with them and understanding their needs

The concept of a controlling financial interest would be when a shareholder or group of

shareholders are in control of and hold most of the company’s stock, hence the term

When there is a change in control of a company and pushdown accounting is not elected at the

time of that change, “the acquiree can elect it in the next reporting period as a change in

accounting principle as outlined in FASB ASC 250”.

The most important consideration to decide on before making the election would be to

remember that the “decision is irrevocable. If an entity decides to change its election later, it

will be considered a change in accounting principle in accordance with Topic 250 on

accounting changes and error corrections and may require retrospective restatement of

financial statements”.

activities the most significantly affect the company's economic performance and has an

obligation to absorb the company’s losses or the rights to receive the benefits of the

Push-down accounting is the restatement of a newly acquired subsidiary’s assets and

liabilities at the fair-value directly on the subsidiary’s books. This is an optional practice that

a subsidiary can follow if they prepare and file financial statements that are separate from

their new parent company with the Securities and Exchange Commission (SEC). For the

Subsidiary to exercise this option it must decide to do so during the year of acquisition from

down accounting then it may, but it would need to do so as a change in accounting principle,

which would require that the subsidiary show that the change is preferable, and that the

subsidiary retrospectively adjust its assets and liabilities as of the date of acquisition. When a

subsidiary chooses to use push-down accounting that choice is irrevocable and must be used

for all future financial statements (PWC, 2021, p. 10.1.5).

There are multiple considerations to consider when trying to decide on using the push-down

accounting election. The different users of financial statements would have different views on

how they would want the subsidiary to record the assets and liabilities. One set of users would

want the values restated, while another set would not want the values restated because the

separate set of financial statement users would be indifferent to push-down accounting as they

concentrate on cash flows and earnings before interest, taxes, depreciation, and amortization

(EBITDA) since these items will be insignificantly affected by using push-down accounting.

Also, there may be tax considerations involved to electing to use push-down accounting as

recognizing the fair values on the books could cause an increase or decrease in the amount of

income taxes that the subsidiary would need to pay (PWC, 2021, p. 10.1.3). My preference

would be to use push-down accounting, when possible, as to avoid needing to keep track of

the separate assets and liabilities at two different values, the historical value of the subsidiary

and the fair value that the parent bought the assets and liabilities for when they acquired the

Christensen, T., Cottrell, D., & Budd, C. (2019). Advanced Financial Accounting (12th ed.).

PWC. (2021, December 31). 10.1 Pushdown Accounting. Retrieved on July 5, 2022, from

https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/business_combination/business_c

ombination__28_US/chapter_10_other_bus/101_chapter_overview_US.html#pwc-

topic.dita_1827173301143245-tOp-S

https://www.cpajournal.com/2018/03/28/implications-pushdown-accounting/

Jones, R. C., PhD. (2018, August 29). Common Control Entities and Consolidation of

Variable Interest Entities. The CPA Journal. Retrieved July 5, 2022, from

https://www.cpajournal.com/2018/08/15/common-control-entities-and-consolidation-of-

variable-interest-

entities/#:%7E:text=A%20controlling%20financial%20interest%20is,or%20related%20group

%20of%20entities).

Liberto, D. (2021, March 29). Pushdown Accounting. Investopedia. Retrieved July 5, 2022,

from https://www.investopedia.com/terms/p/push-down-

accounting.asp#:%7E:text=In%20pushdown%20accounting%2C%20the%20target,value%20

on%20its%20financial%20statements.

Push-Down Accounting. (n.d.). International Financial Reporting Tool.

https://www.readyratios.com/reference/accounting/push_down_accounting.html

Smith, T. (2021, December 6). What Is a Controlling Interest? Investopedia. Retrieved July 5,

2022, from https://www.investopedia.com/terms/c/controllinginterest.asp