Pushdown accounting under ASU 2014-17

• Explain when an acquiree may elect pushdown accounting
• Prepare the acquiree’s opening balance sheet under pushdown
• Decide whether goodwill, bargain purchase gains and acquisition debt are pushed down
• Describe the disclosures for a pushdown election

What pushdown accounting is

Pushdown accounting is the use of the acquirer's basis in preparing the acquiree's separate financial statements. Without it, the acquiree keeps its historical carrying amounts in its own statements, and the step-ups and goodwill appear only in the parent's consolidation. With it, the acquiree's own balance sheet shows the same fair values and goodwill the acquirer recognized.

Acquiree statements matter when the acquiree has its own lenders, regulators, minority investors or an SEC filing requirement. Pushdown makes those statements consistent with the parent's view and removes a reconciling layer.

The election under ASU 2014-17

Subtopic 805-50 gives an acquiree the option to apply pushdown accounting in its separate financial statements when an acquirer obtains control of it. The trigger is a change-in-control event, the same control concept used in Topics 805 and 810. The acquirer can be an individual or an entity, so a change in control by a private investor counts.

• The election is made separately for each change-in-control event.
• The acquiree may elect it in the reporting period in which the change in control occurs.
• If it does not elect it then, it may elect it in a later reporting period for its most recent change-in-control event. That later election is a change in accounting principle under Topic 250.
• Once applied to a change-in-control event, the election is irrevocable.

A subsidiary of the acquiree can also make its own election, separately.

What is pushed down

805-50-30-10 requires the acquiree to reflect the new basis of accounting the acquirer established in applying Topic 805. In practice:

• Identifiable assets and liabilities are restated to the acquirer's acquisition-date amounts, including newly recognized intangibles and the deferred taxes on the step-ups.
• Goodwill. The acquiree recognizes the goodwill that arises from applying pushdown (805-50-30-11).
• Bargain purchase gain. The acquirer's gain is not recognized in the acquiree's income statement. The acquiree records it as an adjustment to additional paid-in capital, or net assets for a not-for-profit acquiree (805-50-30-11).
• Acquisition debt. Debt the acquirer took on to buy the acquiree is recognized by the acquiree only if it is an obligation of the acquiree under other Topics (805-50-30-12).
• Equity. The acquiree's historical retained earnings and accumulated other comprehensive income are eliminated. Equity is reset to reflect the new basis.

Presentation

The acquiree's statements show a predecessor period up to the change in control and a successor period after it, usually separated by a vertical black line to signal that the periods are on different bases and are not comparable.

Disclosures

805-50-50-5 requires the acquiree to disclose information that lets users evaluate the effect of pushdown accounting, in the period it is applied, considering the disclosure requirements elsewhere in Topic 805. 805-50-50-6 lists what that information may include: the name and description of the acquirer and how it obtained control, the acquisition date, the acquisition-date fair value of total consideration transferred, the amounts recognized for each major class of assets and liabilities (and why any are incomplete), and a qualitative description of the factors that make up goodwill.

When not to push down

The acquiree's lenders may prefer historical cost covenants, or a sale of the acquiree is planned soon. The election is per event and irrevocable once made, so the decision belongs in a memo signed off before the first successor-period statements are issued.

Target pushes down a $50 million acquisition