Controlling can be defined by any company or individual owning more than 10% of all
outstanding common stock. Or if an individual or company owns more than 50% of voting
stock. Push-down accounting is an exciting concept that allows accounting of acquired
entities to be "pushed down" the owner's financial statements. The board of directors should
make the determination based on the company’s stock value as well as the value of its net
assets
Controlling financial interest is referring to a company or their parent company holding the
majority of the company's stock. This is defined in FASB ASC 810 as, "[t]he terms subsidiary
has been defined as “an entity … in which another entity, known as its parent, holds a
controlling financial interest” (ASC 810). A parent company does not need to hold all of a
corporate subsidiary’s common stock, but at least majority ownership is normally required for
the presentation of consolidated financial statements. Most, but not all, corporate subsidiaries
are wholly owned by their parents.
To elect pushdown accounting, the acquirer or parent company must hold control of the
entity. A form of control is owing the majority of common shares/stock.
The most important decision to make during this whether or not to consolidate financial
statements.
My apologies for the delayed post, my family has been traveling nonstop for 3 days and I
totally thought yesterday was Wednesday until I woke up this morning and saw it was Friday!
In my opinion, the best way to describe the concept of controlling financial interest is who
had majority control. For example, while the company I work for (PAI) is still operating in its
own fashion, we are now part of a parent company (Brinks) and our financial statements are
consolidated with theirs. They bought our company in full acquisition, meaning they own
100% of the shares in our company rather than the private board we had before. While
members of the board are still parts of my company with needed roles and important duties,
they no longer have any financial interest in the company, while Brinks has a controlling
financial interest in my company.
If the acquire company wanted to elect the pushdown accounting method, there is nothing
legal that must be done such as paperwork filed. They would however need to adjust the
accounts they have for the revaluations. As stated by Christensen et al., “… involves making
an entry to debit or credit each asset and liability account to be revalued, with the balancing
entry to a revaluation capital account” (Christensen, 2019).
I think the most important thing to consider before deciding to make an election into
pushdown is the parent company and what their preferences might be. While the subsidiary
company may want to use the pushdown method and feel it will work best for them, if this
isn’t going to mesh well with the parent company or if the parent company feels there could
be some confusion/misstatement in the process then this is something that needs to be heavily
focused on. While the subsidiary still can employ the method, it would not be wise to jump
into without an understanding of the parent companies’ opinion on the matter.
Christensen, T., Cottrell, D., & Budd, C. (2019). Advanced Financial Accounting, Twelfth
Edition. Retrieved from https://prod.reader-ui.prod.mheducation.com/epub/sn_33530/data-
uuid-fa2d6d0c43f04ae9b79f83570e0bd6db
Controlling interest is when a shareholder, or a group acting in kind, holds a majority of a
company's stock. The shareholder of a company must own 50% plus one of the company's
outstanding shares to be considered the controlling financial interest. However, a single
person or group can achieve controlling interest if they own a significant proportion of its
voting shares even though they may own less than 50% of the company. Push down
accounting is a bookkeeping method used by companies when they buyout another firm. The
acquirer's accounting basis is used to prepare the financial statements of the purchased entity.
In the process, the assets and liabilities of the target company are updated to reflect the
purchase cost, rather than historical cost. You 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. I think it would be important to consider the pros and cons push
down accounting will have in keeping or removing the debt on future profitable acquisitions
from a tax and reporting perspective, and you must factor in the advantages and
disadvantages.
The concept of a ‘controlling financial interest’ refers to the direct or indirect ownership of
ten percent or more of the outstanding capital stock in a corporation. It even encompasses the
indirect or direct interest of ten percent or more in an undertaking, partnership, corporation, or
other business entity (Controlling Financial Interest definition. Law Insider, 2021). In the
context of pushdown accounting, it is vital to determine the existence of the controlling
financial interest so that it can help in identifying the acquirer. For instance, if a business
combination has taken place, but there is no clear indication of the acquirer, the elements
captured in ASC 805-10-55-11 through ASC 55-15 will be considered to identify the
acquirer.
The acquiree has the option to elect pushdown accounting in its distinctive financial
statements. It can elect the accounting upon the happening of an event where the acquirer has
gained control over the acquired entity (Pushdown accounting. Viewpoint, 2021). In the
specific accounting context, the basis of the acquirer relating to the assets and liabilities at the
event of the change in control is pushed to the acquiree. Furthermore, it becomes the
acquiree’s new cost basis that is used for preparing the stand-alone financial statements of the
acquiree. It is vital to carry out a rigorous and thorough investigation when it comes to
electing and applying the pushdown accounting concept. All the facts, as well as
circumstances, need to be considered, including any possible effects relating to taxation. The
acquiree has to make the election pertaining to the pushdown accounting prior to the
availability of the financial statements for issue for the specific reporting period in which the
alteration relating to the control event has taken place.
One of the most important considerations for deciding before making the election of
pushdown accounting is the probable tax effects. For instance, it is necessary to understand
the impact pertaining to tax reporting implications. Such an element can play a cardinal role
since it can assist in carrying over the historic basis for the purpose of financial reporting
when the carry over basis is applied for reporting tax-related aspects (Pushdown accounting.
Viewpoint, 2021). In case the transaction is accounted for as asset purchase for taxation
purposes, there is likely to be a change in the tax bases relating to the assets and liabilities of
the acquired firm without any corresponding alteration in its book basis. So, the deferred tax
would be identified in its financial statements for the difference relating to the book-to-tax
basis (Pushdown accounting. Viewpoint, 2021).
References
Controlling Financial Interest definition. Law Insider. (2021). Retrieved July 6, 2022, from
https://www.lawinsider.com/dictionary/controlling-financial-
interest#:~:text=Controlling%20financial%20interest%20means%20ownership,partnership%
20or%20other%20business%20entity
Pushdown accounting. Viewpoint. (2021). Retrieved July 6, 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.
