• 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 taken into account, 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%20
ownership,partnership%20or%20other%20business%20entity
Pushdown accounting
. Viewpoint. (2021). Retrieved July 6, 2022,
from
https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/busine
ss_combination/business_combination__28_US/chapter_10_other_b
us/101_chapter_overview_US.html.
