July 29, 2014
File Reference No. EITF-12F
Financial Accounting Standards Board
401 Merritt 7
PO Box 5116
Norwalk, CT 06856-5116
Re: Proposed Accounting Standard Update: Business Combinations (Topic 805) Pushdown Accounting
The Virginia Society of CPAs’ (VSCPA) Accounting and Auditing Advisory Committee (the Committee) has reviewed the above exposure draft (ED). In general, the Committee supports the Financial Accounting Standards Board’s (the FASB or Board) objective to provide guidance on when and how an acquired entity that is a business or nonprofit activity can apply push down accounting in its separate financial statements. We agree this initiative is necessary to address the lack of guidance and the diversity in practice for nonpublic entities as well as the practice issues that exist in the application for all entities.
Below are summary-level comments on the ED under the topics optional nature of guidance and additional implementation guidance. In addition, the attached table (PDF) addresses the specific questions for respondents posed by the Board.
Optional nature of guidance
Adoption when the acquirer has applied Topic 805: Ostensibly, the optional nature of the guidance is inconsistent with the objective of improving consistency. However, mandatory guidance would require significantly more acquired entities to incur the costs of applying pushdown accounting, especially since the threshold for application is at the change in control level. We are unaware of any empirical data that suggests the users of the financial statements would have information that is better for decision-making. Accordingly, the Committee believes that the optional nature is a prudent and reasonable conclusion at this time to allow the acquired entity to evaluate its specific facts and circumstances in deciding whether push down accounting addresses the needs of its financial statement users. The Board could later address this issue when additional information and experience are available.
Adoption when the acquirer has not applied Topic 805: Some members of the Committee are less supportive of the option for the acquired entity to apply pushdown accounting when the acquirer has not established a new basis of accounting for the individual assets and liabilities of the acquired entity. The resulting “scenario” reporting creates an unusual and seemingly unwarranted asymmetry; the financial statements are not on the historical basis or the revised basis of accounting of the acquirer.
Additional implementation guidance
Practice issues for public and nonpublic companies: The ED purports to address practice issues that exist in the application for all entities. Could the FASB be more specific on which significant practice issues and how they are or are not addressed by the ED?
Bargain purchase: We agree that any bargain purchase should not be reported in the income statement of the acquired entity. However, we believe the Board should provide specific guidance on how to account for the effects of a bargain purchase gain within the equity section of the acquired entity’s financial statements.
The Committee commends the FASB on its initiative to improve the consistent application of pushdown accounting. We appreciate the opportunity to respond to the ED. Please direct any questions to VSCPA Government Affairs Director Emily Walker at [email protected] or (804) 612-9428.
Charles M. Valadez, CPA, CGMA, CITP
2014–15 VSCPA Accounting & Auditing Advisory Committee
Charles Valadez, CPA — Chair
Joshua Keene, CPA — Vice Chair
Michael Cahill, CPA
Mitchell Hartson Jr., CPA
Staci Henshaw, CPA
James Nesbitt, CPA
Brent Simer, CPA