Controlling Financial interest is when an individual or entity buys or otherwise obtains
enough stock to point where they become the largest holder in the company. This can happen
through original ownership and acquiring shares through purchase or trade. Push down
accounting is simply adding the obtained entity's assets and liabilities to the buyers or new
owners’ financials, by pushing the assets and liabilities together the new owner consolidates
the financial statements into a single comprehensive set. Although the most common event in
implementing this method is upon a new acquisition it is also possible to do this when the
new company becomes the primary beneficiary of a variable interest’s entity, meaning they
have the controlling interest but not most shares. I believe the most important consideration to
decide on before making the election is understanding the permanence of this decision. Once
this course has been undertaken there is no going back.
A controlling interest is when a shareholder holds most of a company's voting stock. A
shareholder does not have to have majority ownership in a company to have a controlling
interest if they own a significant portion of its voting shares. Having a controlling interest
provides a shareholder with significant power and influence within a company. Shareholders
who have a controlling interest are often able to direct the course of a company and make the
most strategic and operational decisions. The acquirer can elect pushdown accounting by
obtaining control of the acquired entity. Before making an election, it is important to consider
the needs of the users of an acquired company's financial statement. To have a controlling
financial interest, a person must own 50% of their own company or another corporation. This
indicates that a single person oversees most of the equity of the company. A person can also
have a controlling interest even if they do not possess most of the voting shares because that
is still seen as sufficient. When acquiring a new company, the company looking to acquire the
other company chooses push down accounting as opposed to historical foundation. Revaluing
the assets and liabilities of a subsidiary of an acquired company is known as push down
accounting. They are directly revalued to their fair values on the subsidiary's records as of the
acquisition date. For each asset and liability account that is revalued using the push down
method, an adjustment debit or credit entry is needed. The effects that push down accounting
will have on the company's financial statements must be considered before choosing it over a
historical basis. By "pushing down" the recently adopted acquirer's basis, pushdown
accounting creates a new basis for reporting assets and liabilities in an acquirer's standalone
financial statements. To decide if push down accounting is the best course of action, I think
the benefits and drawbacks should be weighed.
Controlling financial interest is defined as having 50% or more in voting equity or ownership
of 10% or more outstanding capital stock. An acquiree can elect to for pushdown accounting
in the event of an acquirer obtaining control over an acquired entity. I would say the most
important consideration in deciding to use pushdown accounting is will it result in higher net
assets for the acquired company? Assets and liabilities being pushed up or down will effect
the purchase price because you are not purchasing a company based on historical data.
A controlling financial interest is defined as an investment of 50% or more of the voting
equity of another entity. Therefore, in accordance with ARB 51, a company that holds 50% or
more of the voting equity of an affiliate is viewed as the controlling parent company and
should include the affiliate (or affiliated group) in its consolidated financial statements
(Richard C. Jones, 2018). An acquiree can elect to use pushdown accounting in its separate
financial statements upon the occurrence of an event in which the acquirer obtains control of
the acquired entity (Dietrich, 2020). I think the most important consideration is how the
financial statements are viewed. The assets and liabilities will affect the reports because they
are being pushed up or down. It is about the purchase price not the historical price because it
is about the present value.
“A controlling financial interest is defined as an investment of 50% or more of the voting
equity of another entity (or related group of entities)” (Richard C. Jones, 2018). This can also
be achieved when there is a good portion of the voting share since not all shares hold the same
voting weight in shareholder meetings. The advantage of controlling interest is that it
provides a group or individual the ability to be a part of the decision-making process of the
company and overturn decisions of the board. It also provides “a controlling interest grants an
investor the leverage to increase their shareholding stake in a company in the event of a
merger or acquisition” (Smith, 2022).
“Push-down accounting is the practiced of revaluing an acquired subsidiary’s assets and
liabilities to their fair values directly on the subsidiaries books at the date of purchase”
(Christensen et al., 2019). When this is done there is no need to include them on a
consolidated worksheet. In 2014, FASB reissued its standards, which eliminated the
percentage ownership and made this optional for companies that were acquired.
An important consideration to keep in mind when electing the push-down accounting is the
impact on the income statement and its historical cost. When a company elects to use push-
down accounting, the acquiree adjusts the assets and liabilities to reflect the purchase price.
“Any gains and losses associated with the new book value are “pushed down” from the
acquirers to the acquired company’s income statement and balance sheet” (Liberto, 2022).
You must consider the tax and jurisdiction and the ease of evaluating the profitability of the
purchase.
"Controlling financial interest is defined as an investment of 50% or more of the voting
equity of another entity. Therefore, in accordance with ARB 51, a company that holds 50% or
more of the voting equity of an affiliate is viewed as the controlling parent company and
should include the affiliate (or affiliated group) in its consolidated financial statements" (CPA
Journal). Pushdown accounting is a method of accounting in which your account for the
purchase price rather than the historical cost. It is important to consider whether you will
result in higher or lower costs. Because you are not looking at historical data, it is important
to review the value of assets and liabilities you are getting prior to making the purchase.
https://www.cpajournal.com/2018/08/15/common-control-entities-and-consolidation-of-
variable-interest-
entities/#:~:text=A%20controlling%20financial%20interest%20is,or%20related%20group%2
0of%20entities).
Christensen, T. E., Cottrell, D. M., & Budd, C. (2019). Advanced Financial Accounting (12th
ed.). McGraw Hill LLC.
Liberto, D. (2022, May 11). Pushdown accounting. Investopedia. Retrieved July 7, 2022,
from https://www.investopedia.com/terms/p/push-down-
accounting.asp#:~:text=Pushdown%20accounting%20is%20a%20method,to%20reflect%20t
he%20purchase%20price.
Richard C. Jones, P. D. (2018, August 29). Common control entities and consolidation of
variable interest entities. The CPA Journal. Retrieved July 7, 2022, from
https://www.cpajournal.com/2018/08/15/common-control-entities-and-consolidation-of-
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Smith, T. (2022, June 14). What is a controlling interest? Investopedia. Retrieved July 7,
2022, from https://www.investopedia.com/terms/c/controllinginterest.asp
Dietrich, N. F. (2020, September 18). Pushdown accounting. McClintock & Associates.
Retrieved July 7, 2022, from https://www.mcclintockcpa.com/pushdown-
accounting/#:~:text=An%20acquiree%20can%20elect%20to,control%20of%20the%20acquir
ed%20entity.
Richard C. Jones, P. D. (2018, August 29). Common control entities and consolidation of
variable interest entities. The CPA Journal. Retrieved July 7, 2022, from
https://www.cpajournal.com/2018/08/15/common-control-entities-and-consolidation-of-
variable-interest-
entities/#:~:text=A%20controlling%20financial%20interest%20is,or%20related%20group%2
0of%20entities).
https://www.lawinsider.com/dictionary/controlling-financial-interest
Christensen, T. E., Cottrell, D. M., & Budd, C. (2019). Advanced financial accounting
(12th ed.). New York, NY: McGraw-Hill Education.
Rashty, Josef. 2018. "Implications of Pushdown Accounting".
cpajournal.com/2018/03/28/implications-pushdown-accounting/
Smith, T. (2020, August 21). Controlling Interest. Investopedia.
https://www.investopedia.com/terms/c/controllinginterest.asp
(2022, April 30). 17.6 Pushdown Accounting [Review of 17.6] Pushdown Accounting].
Viewpoint.
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topic.dita_91bd356e-fae4-4b23-bc0d-51fd46e91c08
https://www.investopedia.com/terms/c/controllinginterest.asp
Implications of Pushdown Accounting
