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Accounting for Business Combinations: Pushdown Proposal Gains Popularity


FASB and the IASB published Exposure Drafts outlining proposed changes to the accounting for leases.The Financial Accounting Standards Board’s (FASB’s) Emerging Issues Task Force (EITF) is proposing to change the guidance for pushdown accounting as part of an effort to give acquired businesses more flexibility in preparing their financial statements. “Pushdown” refers to the process of revaluing an acquired business’s balance sheet after the acquisition based on the parent company’s valuation of the new subsidiary. So far, the comment letters on the proposal have been favorable.

Expanded guidance on pushdown accounting
On April 28, FASB published Proposed Accounting Standards Update (ASU) No. EITF-12F, Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force). The proposal would give businesses and other organizations wider use of an option to apply pushdown accounting when they’ve been acquired or merged with another entity.

Existing U.S. Generally Accepted Accounting Principles (GAAP) provide limited guidance for applying pushdown accounting to the financial statement of an acquired business, and the EITF proposal attempts to establish a clear standard for its application. The Securities and Exchange Commission (SEC) currently provides pushdown accounting guidance for public companies, but private entities aren’t subject to the same rules, creating diversity in practice.

The proposal would provide an acquired public or private entity with the option to apply pushdown accounting upon the occurrence of an event in which the acquirer obtains control of it, such as a merger or an acquisition. Acquired companies would evaluate the option to apply pushdown accounting for each individual change-in-control event.

If the acquired entity elects to use pushdown accounting, its financial statements would generally reflect the new basis of accounting established by the acquirer for the individual assets and liabilities of the acquired entity, including goodwill, by applying FASB Accounting Standards Codification (ASC) Topic 805, Business Combinations, and FASB ASC Topic 810, Consolidation. However, if the business combination results in a bargain purchase gain, the acquired entity would not recognize that gain in its income statement.

Acquired entities that elect the pushdown accounting option would also be required to disclose information to help financial statement users evaluate the effect of pushdown accounting on its financial statements.

If the acquired entity doesn’t elect the pushdown accounting option, it would disclose that the entity has undergone a change-in-control event in the current reporting period but has elected to continue to prepare its financial statements using its historical basis that existed before the merger or acquisition.

Next steps
The EITF will review comments to the proposal at its September meeting. So far, the feedback from accounting practitioners has been positive, despite initial concerns that the proposal doesn’t address the full scope of questions regarding the suitability of pushdown accounting in certain situations.

If the proposed changes are finalized, the SEC may need to review its guidance in FASB Accounting Standards Codification (ASC) 805-50-S99, Broad Transactions — Business Combinations — Related Issues — SEC Materials. When all is said and done, the SEC may need to either rescind or substantially modify its guidance to match the final update.

Stay tuned
If approved, the new guidance would apply prospectively to change-in-control events that occur on or after the effective date. The effective date will be determined after the EITF considers stakeholder feedback on the proposal and decides on its next course of action.


To further discuss these proposed changes, contact Dan Ward, Manager, Audit Services, at 314.983.1237 or



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