SEC Staff Releases Accounting Bulletin to Update Guidance on Pushdown Accounting

The Securities and Exchange Commission’s Office of the Chief Accountant and Division of Corporation Finance today released a Staff Accounting Bulletin (SAB) to rescind portions of the interpretive guidance included in its SAB Series for what’s known as pushdown accounting. 

In order to reflect private sector developments in U.S. Generally Accepted Accounting Principles, the SEC’s Staff Accounting Bulletin No. 115 rescinds SAB Topic 5.J. entitled New Basis of Accounting Required in Certain Circumstances.  The new bulletin brings existing guidance into conformity with Accounting Standards Update No. 2014-17 – Business Combinations (Topic 805): Pushdown Accounting, a consensus of the FASB Emerging Issues Task Force, which was ratified by the Financial Accounting Standards Board (FASB) on Oct 8, 2014.

The statements in SABs are not rules or interpretations of the Commission nor are they published as bearing the Commission’s official approval.  They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.

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Fact Sheet

Prior Guidance

• SAB Topic 5.J was issued on Nov. 3, 1983, and expressed the staff’s views regarding the application of the “push down” basis of accounting in the separate financial statements of entities acquired in purchase transactions. 

• SAB Topic 5.J indicated that when a purchase transaction results in an entity becoming substantially wholly owned, a new basis of accounting should be established in the acquired entity’s financial statements to reflect the acquirer’s basis in the purchased assets and liabilities.

New Guidance

• The guidance in ASU No. 2014-17 provides an option to apply pushdown accounting in the separate financial statements of an acquired entity upon the occurrence of an event in which an acquirer obtains control of the acquired entity.

Impact

• ASU No. 2014-17 impacts the stand-alone financial statements of an acquired entity (subsidiary), however it does not change the requirement for an acquirer (parent) to apply business combination accounting and record its new basis in the acquired entity’s assets, liabilities, and non-controlling interests in the acquirer’s consolidated financial statements.

• The change will facilitate the financial community’s transition to the new guidance by providing timely communication of the staff’s views with regards to the continuing applicability of its historical interpretive guidance on pushdown accounting.