The US Financial Accounting Standards Board (FASB) published new accounting rules on “pushdown accounting” that may make financial reporting easier for portfolio companies destined for an IPO.
When a company is acquired, pushdown accounting allows the target company to use the GP’s basis of accounting to reflect the purchase costs of the acquirer in its financial statements rather than its historical costs.
In an update to Business Combinations (Topic 805), FASB said the pushdown accounting method is now optional for all entities, both public and private. The Securities and Exchange Commission (SEC) formerly required certain public companies to follow the pushdown method, but scrapped that guidance now that FASB has clarified when pushdown accounting can be used.
For GPs, the pushdown accounting method is sometimes applied to portfolio companies being prepped for a public market exit, where pushdown accounting could be a requirement. The standard update removes that need.
FASB said it issued the new rules to help eliminate diversity in practice regarding accounting by the acquiree when it continues to issue separate standalone financial statements.