How pushdown accounting is applied after a change in control under IFRS and US GAAP

Pushdown accounting determines whether the acquirer’s fair value basis should be “pushed down” into the separate financial statements of the acquired entity. This affects the acquired company’s assets, liabilities, equity, goodwill, and subsequent depreciation/amortization. While US GAAP (ASC 805-50) provides an elective pushdown framework, IFRS has no explicit pushdown standard, generally prohibiting pushdown unless local regulators require it. Understanding when and how pushdown applies prevents basis mismatches and inconsistencies between consolidated and separate entity reporting.

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Why pushdown accounting matters for acquired entities

After a change in control — for example, the purchase of a subsidiary — the acquirer measures the acquired company’s assets and liabilities at fair value in consolidated accounts. The question is whether the subsidiary itself should also reflect those fair values in its own stand-alone financial statements.

Pushdown affects:

• Goodwill recognition at the subsidiary level

• Depreciation/amortization based on new fair values

• Equity structure, because consideration paid replaces old equity

• Debt covenants, due to changes in carrying amounts

• Comparability before and after the acquisition

Some entities prefer pushdown to align stand-alone accounting with the consolidated basis; others avoid it to preserve historical continuity.

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IFRS position — no pushdown unless required by local law or regulation

IFRS does not permit pushdown accounting in general-purpose financial statements because:

• Fair value adjustments from IFRS 3 are made only in the consolidated accounts of the acquirer.

• The acquired entity is considered a separate reporting entity, not the acquirer itself.

• The acquirer’s cost of obtaining control is irrelevant to the subsidiary’s measurement basis.

Under IFRS:

• Subsidiary’s stand-alone financial statements retain pre-acquisition carrying amounts.

• No goodwill is recognized by the subsidiary.

• No fair value step-up or step-down is applied unless local regulators mandate otherwise (common in certain jurisdictions).

Illustrative IFRS position:

Acquirer buys TargetCo for €200m; FV of net assets = €150m → goodwill €50m in consolidation.TargetCo’s own stand-alone statements remain unchanged:

• PPE at previous carrying amount

• No goodwill

• Historical depreciation schedules continue

Pushdown appears only in the consolidated financial statements.

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US GAAP — elective pushdown accounting under ASC 805-50

US GAAP allows the acquired entity to elect pushdown accounting whenever an acquirer obtains control (generally >50%) or achieves a bargain purchase.

If elected:

• The acquiree remeasures its assets and liabilities to the acquirer’s fair values.

• The acquiree recognizes goodwill (or bargain purchase gain) in its stand-alone statements.

• The acquiree’s equity is reset, with old equity eliminated and a new “pushdown capital” account created.

• Subsequent depreciation/amortization follow the new stepped-up values.

If not elected:

• Carrying amounts remain historical.

• Consolidation reflects fair values at the parent level; subsidiary remains on historical basis.

Key US GAAP rule:Once elected, pushdown accounting is irreversible.

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Comparative framework — IFRS vs US GAAP

Topic	IFRS	US GAAP (ASC 805-50)
Core principle	Generally prohibits pushdown	Permits elective pushdown
Trigger	None; not permitted	Change in control event
Goodwill in subsidiary books	No	Yes if elected
Fair value step-up in subsidiary	No	Yes
Reversibility	Not applicable	Irreversible once elected
Practical application	Subs remain at historical cost	Subs may align with consolidation basis
Jurisdictional overrides	Possible via local regulators	Not relevant

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Worked example — elective pushdown under US GAAP

Facts ($):

• Acquirer buys 100% of BetaCo for $140m.

• FV of net identifiable assets = $100m.

• Goodwill = $40m.

If BetaCo elects pushdown:

1. Revalue all assets and liabilities to fair value:

   • Dr PPE 25,000,000

   • Dr Intangibles 15,000,000

   • Cr Liabilities (FV adjustments) xx

2. Recognize goodwill:

   • Dr Goodwill 40,000,000

3. Reset equity using “pushdown capital”:

   • Cr Pushdown Capital 140,000,000

   • Eliminate historical equity balances.

4. Future reporting:

   • Depreciation based on FV-adjusted PPE

   • Amortization of intangible assets

   • Impairment testing for goodwill per ASC 350

If pushdown is not elected:

• BetaCo’s stand-alone books remain unchanged.

• Consolidated accounts reflect FV adjustments and goodwill; BetaCo’s separate statements do not.

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Worked example — IFRS subsidiary with no pushdown

Facts (€):

• Parent acquires SubCo for €300m.

• Fair value step-up on PPE = €40m in the consolidation process.

• Goodwill recognized at parent level = €60m.

SubCo stand-alone under IFRS:

• PPE remains at pre-acquisition carrying value.

• No goodwill recorded.

• Depreciation continues using historical values.

• Equity unchanged by acquisition (except for legal entity share capital changes if any).

Parent consolidation entries:

• Dr PPE (FV step-up) 40m

• Dr Goodwill 60m

• Cr SubCo net assets (carrying) xx

• Cr Consideration 300m

SubCo’s own financial statements show none of these adjustments.

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Journal entries summary (US GAAP pushdown elected)

At acquisition date within subsidiary books:

• Dr Identifiable Assets (FV) xx

• Dr Goodwill xx

• Cr Liabilities (FV) xx

• Cr Pushdown Capital (equity) xx

Subsequent periods:

• Dr Depreciation/Amortization (FV basis) xx

• Cr Accumulated Depreciation/Amortization xx

If impairment arises:

• Dr Impairment Loss xx

• Cr Goodwill xx

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Disclosure requirements

IFRS:

• Disclose acquisition details in consolidated statements only.

• If local regulation requires pushdown, disclose basis and impact.

US GAAP:

Entities must disclose whether pushdown was elected, including:

• Date of application

• Justification for electing pushdown

• Fair value adjustments recognized

• Amount of pushdown goodwill

• Impact on depreciation/amortization

• Irreversibility statement

These disclosures help users understand why the subsidiary’s books differ from its historical basis.

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Impact on financial performance and ratios

• Depreciation/amortization: Higher expenses under pushdown reduce future earnings.

• Leverage ratios: Fair value adjustments may increase total assets; goodwill inflates total capital.

• ROA and ROE: Can shift materially due to new bases.

• Debt covenants: Step-up in assets or goodwill may affect covenant thresholds.

• Comparability: IFRS subsidiaries maintain continuity; US GAAP subsidiaries may show breaks in trend if pushdown is elected.

Analysts must adjust for these discontinuities when reviewing stand-alone financials.

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Operational considerations

• For US acquisitions, evaluate whether pushdown helps or hurts loan covenants, KPIs, and performance metrics.

• Ensure the entire valuation used in the PPA is available and reconcilable for pushdown.

• Prepare stakeholders for higher expenses (depreciation, amortization) if pushdown is elected.

• Under IFRS, ensure teams understand that pushdown is not permitted, except where legally mandated.

Applying pushdown correctly prevents basis mismatches and preserves financial statement integrity across group reporting levels.

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