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 most 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 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 most of the common shares/stock.
The most important decision to make during this whether to consolidate financial statements.
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.
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