Describe the concept of a "controlling financial interest."
A "controlling financial interest" is typically considered to be at least 50% of the outstanding shares
of a company. In some cases, it is defined as the largest held group of voting shares because not
every share carries a vote in some shareholder meetings. Either way, to have the controlling
financial interest in a company tends to give that person (or group) the most sway over what does
happen in those shareholder meetings and subsequently what happens within the company. It
should be known that this does not grant any exclusive control that cannot be taken away or
redistributed as those who wish to have a little more sway or influence can try be elected to a
board or lobby publicly for the changes they would like to see, putting the control more definitively
into their hands (Smith et al., 2021).
How does the acquiree elect pushdown accounting?
If an acquiree obtained control of the entity they sought to acquire, they can elect the use of
pushdown accounting in their separate financial statements (Dietrich, 2016). This would essentially
push the acquired assets and liabilities to the acquirer and become part of their financial
statements that are separated from the acquirer’s financial statements. It is important to consider
all the nuisances that may arise from this method and the tax implications as well to bring those
assets, liabilities and more over from the date of the acquisition.
What do you feel is the most important consideration to decide on before making the election?
I think that the most important consideration that needs attention before committing to making the
election is how the acquired views their financial statements and whether or not they match the
way you do. While it may not hinder some, it is important to understand that the way they view
their statements can greatly fluctuate the outcomes of income statements depending on if they use
a historical basis. However, if you as the acquirer are more focused on cash flow and EBITDA
(Earnings Before Interest, Taxes, Depreciation, and Amortization), then you may find you are
indifferent to the issues that may come with pushdown accounting (Christensen et al., 2019).
References
Christensen, T. E., Cottrell, D. M., & Budd, C. J. H. (2019). Advanced Financial Accounting (12th ed.).
McGraw-Hill Education.
Dietrich, N. F. (2016, December 20). Pushdown accounting. McClintock & Associates. Retrieved July
6, 2022, from https://www.mcclintockcpa.com/pushdown-accounting/
Smith, T. (2021, December 5). Controlling Interest. Investopedia. Retrieved July 6, 2022, from
https://www.investopedia.com/terms/c/controllinginterest.asp
