FASB seeks feedback on M&A accounting

The board wants to provide more clarity about when and how acquired companies can apply ‘pushdown accounting’. 

The US Financial Accounting Standards Board released new draft guidance on its accounting rules for certain mergers and acquisitions.

The exposure draft, Business Combinations (Topic 805): Pushdown Accounting, aims to harmonize when and how companies of all types, including both public and private, prepare their financial statements after being bought out by a private investment firm  or some other new controlling owner.

“The amendments in this proposed update would be an improvement over current US GAAP by defining when and how an acquired  entity may apply pushdown accounting in its separate financial statements,” the exposure draft reads.

Push-down accounting is when an acquired company accounts its new owner’s basis in its own standalone financial statements. However US GAAP provides little guidance on when and how companies should apply pushdown accounting, which has resulted in some diversity in practice.

For instance, the US Securities and Exchange Commission offers guidance on the matter for registered companies, but non-registered entities are not required to apply this guidance, which has led to some diversity among non-registered companies in terms of when pushdown accounting is applied.

“Under the proposed update, the option to apply pushdown accounting would be evaluated upon the occurrence of an event in which an investor obtains control of an acquired entity and would be irrevocable,” said FASB spokesperson Christine Klimek. “However, if pushdown accounting is not elected, an acquired company would still be required to disclose that it has not elected to apply pushdown accounting in its financial statements.”

The new guidance on pushdown accounting is also in line with the threshold for change in control events in Topic 810, which relates to consolidation accounting. That ultimately reduces “the complexity that some stakeholders said exists under the current pushdown guidance”, the exposure draft said. 

Comments on the draft are due by July 31, 2014.