Controlling financial interest is defined 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." (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 and/or company), or through the
ownership of subsidiaries that own controlling interests in 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.
I think an important consideration to make when deciding on making
the election to apply pushdown accounting is the needs of the users
of an acquired company's financial statements. You must look at how
these users choose to view their financials, through the stepped-up
basis or the historical basis. By using the historical basis this could
help avoid distorting income statement trends as a result of increased
amortization and depreciation expense. Knowing what the needs of
the users of the acquired company's financial statements is important
prior to electing 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 is
key to moving forward with electing pushdown accounting.
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