A controlling financial interest means that a company )or individual)
holds a majority of the voting stock of a company. It does not
necessarily mean that they own 50% or more of the company, as not
all stock carries voting rights. At times, shareholders with only 10%
ownership can have substantial pull within a company and can even
push for a seat on the board. If all other ownership is in very small
quantities, they could actually have some control. In general though,
having a controlling interest means a majority of the voting stock.
Push down accounting is the method of accounting where an
acquisition is recorded at purchase price on the books rather than its
historical cost. The assets and liabilities are adjusted up or down to
equal the purchase price. The gains or losses from this method are
"pushed down" from the acquirer to the target company's income
statement and balance sheet. Basically this puts the cost to acquire
the business on the targets financials rather than showing up on the
parent company (Liberto, 2021). Many executives feel this is the way
it should be as an acquired company should carry (or cover) the cost
of its acquisition. Pushdown accounting can be elected at the time
the acquisition takes place or in a subsequent period but once it is
chosen it is irrevocable. Prior to 2014 pushdown accounting was
mandatory for purchases of 95% or more of a company, and could
be used for purchases of 80% to 94%. In 2014 the FASB changed
the requirements and pushdown accounting is now available to
anyone that wants to use if no matter the percentage of the
purchase. The SEC has also adopted this guideline as well (Liberto,
2021).
I feel the most important consideration, when choosing push down
accounting, is what the users (shareholders) will find most helpful to
them. Will they prefer seeing historical costs so the income
statement trends will not be distorted or would they prefer to see
the "stepped-up basis". The historical basis may be kept if the tax
reporting basis is on the historical costs. I think it is an event specific
decision as to what is best for both companies including the ease of
the accounting, the reporting to the shareholders, and a way to
create the best representation of the acquisition. I had never heard
of pushdown accounting prior, and I find that it would be a smart
choice in many cases. I like the idea of the cost of the purchase
being supported by the acquired company. In essence why buy a
company that can not support the cost of its purchase? Even if it will
still be run as the company it was before it is under new ownership
so the financials should reflect the change in the values of the
company created by the purchase.
Liberto, D. (March 28, 2021). Investopedia: Pushdown
Accounting. https://www.investopedia.com/terms/p/push-down-
accounting.asp
Smith, Tim. (December 5, 2021). Investopedia: Controlling
Interest. https://www.investopedia.com/terms/c/controllinginterest
.asp
